‘Diamond dollar account’ transactions of gems, jewellery sector may come under RBI scanner

In the wake of fraudulent buyers’ credit transactions, aggregating a whopping ₹11,400 crore, coming to light at Punjab National Bank, the Reserve Bank of India is likely to scrutinise the credit facility provided by banks to the gems and jewellery sector via ‘diamond dollar accounts’.

With the buyers’ credit facility getting compromised in the case of PNB, bankers feel the central bank may now look into diamond dollar account (DDA) transactions for possible diversion or misuse of funds.

A senior public sector bank official said the issue that needs to be closely examined is whether the firms enjoying DDA facility in India and the overseas suppliers are related parties.Overseas suppliers can get buyers’ credit from banks based in their country on the strength of letter of undertaking (LoU) provided by a bank in India to its importer customers. Bankers allude to the possibility of buyers’ credit getting channelled back to the promoters of Indian gem and jewellery firms.

DDAs are dollar denominated current accounts that can be opened with banks in India by firms and companies dealing in purchase / sale of rough or cut and polished diamonds / precious metal jewellery plain, minakari and / or studded with / without diamond and / or other stones.

To open DDAs, firms should have a track record of at least two years in import or export of diamonds / coloured gemstones / diamond and coloured gemstones studded jewellery / plain gold jewellery.

Further, these accounts can be opened by firms having an average annual turnover of ₹3 crore or above during preceding three licensing years. An exporter firm / company is permitted to open and maintain not more than 5 DDAs.

Permissible credits into DDA include amount of pre-shipment and post-shipment finance availed in dollars; realisation of export proceeds from shipments of rough, cut, polished diamonds and diamond studded jewellery; and realisation in dollars from local sale of rough, cut and polished diamonds. Permissible debits to the DDA include payment for import / purchase of rough diamonds from overseas / local sources; payment for purchase of cut and polished diamonds, coloured gemstones and plain gold jewellery from local sources; payment for import/purchase of gold from overseas / nominated agencies and repayment of US Dollars loans availed from the bank; and transfer to rupee account of the exporter. In its first criminal complaint filed with the Central Bureau of Investigation (CBI) on January 29, PNB said two officials at its Brady House (Mumbai) branch issued some fraudulent letters of undertaking (LoU) for and on behalf of a set of partnership firms – Diamonds R US, Solar Exports, Stellar Diamonds — having Nirav Modi, Nishal Modi, Ami Nirav Modi, and Mehul Chinubhai Chokshi as partners.

These bank officials obtained the required request applications, documents and approval of the authorities thereto and did not make entries in the bank’s system, thereby avoiding detection of the transactions.

They transmitted SWIFT instructions to the overseas branches of Indian banks for raising buyers’ credit and funding PNB’s Nostro accounts (in this case PNB’s account with Hong Kong-based banks).

In its second criminal complaint filed with CBI on February 13, relating to unauthorised issuance of LoUs on behalf of Mehul Choksi promoted Gitanjali Group of companies, PNB said officials of the Brady House branch fraudulently issued LoUs without following the bank’s prescribed procedures.

“Credits received under the buyers’ credit in the bank’s Nostro account/s were, however, utilised for payment of earlier raised buyers’ credit in many cases,” the bank said.

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