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The Nirav Modi and Mehul Choksi episode was due to failure in the banking system and the gems and jewellery sector is facing the brunt of tightened lending norms as a result of the scam, speakers at an event organised by the Gem and Jewellery Export Promotion Council (GJEPC) said on Friday.
Rita Teaotia, Commerce Secretary, said there is need for introspection by banks on lending to the gems and jewellery sector.
“The banking sector must recognise that the reasons for the failure (in the recent PNB fraud) were actually due to failure of our own banking system,” Teaotia said. “There is no space for cosy relationship in the banking sector. It has to be business and we have to follow prudent norms,” she said at the conference on ‘Diamond and Jewellery Financing 2018: Mitigating Risks Effectively’.
A white paper released at the event demanded revival of turnover coverage from the Export Credit Guarantee Corporation, which was stopped in 2014.
Teotia said the government will not give any instruction to ECGC and would like the institution to take a call based on merit.
“We expect ECGC to operate in a professional manner to go on merits and take a call. ECGC should help the industry mitigate risk, but that should not be at the direction of the government,” she said.
The Commerce Secretary also asked banks to open up lending for the SMEs in the gems and jewellery sector.
The sector is facing funding issues after the Reserve Bank of India in March banned the issuance of letters of undertaking and letters of comfort, used extensively for trade finance, following the ₹13,000-crore PNB scam.
Earlier, inaugurating the conference, Suresh Prabhu, Union Minister for Commerce, Industry and Civil Aviation, said there is a need to have a banking system which understands the sector and supports its growth, without taking any undue risk.
He urged banks to have proper risk-mitigation mechanism in place to avoid any potential frauds.
Welcoming the MyKYC portal promoted by GJEPC, Dinesh Kumar Khara, Managing Director, SBI, said the data collected by the industry needs to be tested before banks start to revive lending.
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