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The act of ‘loot and scoot’, unleashed by diamond merchant Nirav Modi and Gitanjali Gems promoter-Mehul Choksi, would increase banks’ non-performing assets from the gem and jewellery sector to 30 per cent from 12 per cent.
Punjab National Bank had extended guarantees to jeweller Nirav Modi and his associates to raise ₹11,400 crore abroad without taking any guarantee.
After the scam broke out, PNB filed complaints against Nirav Modi and his associates, including Mehul Choksi, Chairman, Gitanjali Gems, with the CBI.
Analysing the shutdown of business by the two businessmen, CARE Rating said the banking sector had a total loan exposure of ₹69,000 crore to the gem and jewellery sector as of December 2017, and its stressed assets accounted for 11.7 per cent.
With money raised by both the companies accounting for ₹16,000-17,000 crore, the overall gross NPA ratio for this sector would work out to about 30 per cent, it said.
Head count
Gitanjali Gems is among the largest jewellery retailers in the country.
The two companies – Gitanjali and Nirav Modi – employed 648 and 2,200 employees, respectively, as per filings in March 2017.
A combined 3,000 people would be rendered jobless and another 7,000-8,000 temporary workers and employees at franchisees are expected to be affected, it said.
The shutdown of these two companies would pull down the diamond and jewellery foreign trade by six per cent next fiscal.
Imports
India gem and jewellery imports went up to $28.8 billion last fiscal from $24.3 billion logged in FY’16, while exports jumped to $35.6 billion ($32.6 billion) last financial year.
Modi-owned Firestar Diamonds derived most of its revenue from diamond cutting and polishing business. Its diamond sorting business caters to some of the largest players internationally.
The company was also involved in designing and manufacturing of premium stone and diamond studded jewellery.
Stores
The company operated jewellery stores at New York, Beijing and Hong Kong, apart from flagship stores in Mumbai and Delhi. But revenue from its retail business was insignificant as a percentage of the company’s overall revenue.
Gitanjali Gems was present in both import-export of gold and studded jewellery and retail jewellery business in 200 cities in India and top markets abroad.
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