NEW DELHI: Banks are reviewing their exposure to the gems & jewellery sector in the wake of the Rs 11,000 crore scam involving two major players — Nirav Modi and Mehul Choksi.
If banks turn cautious, it could stifle the credit flow to the sector.
According to experts, the impact could be far and wide as the sector comprises not only big players but also many micro, small and medium enterprises, which have just begun to recover from the aftereffects of GST and demonetisation.
According to people in the know, the not-so-kosher dealings of the gems & jewellery sector were an open secret. However, the sheer magnitude of the Punjab National Bank scam has rattled the banking sector.
“We have been asked by the top management to crosscheck multiple times before lending to this sector. From now on, only top branch officials will sanction such loans,” said a senior employee to the Union bank of India.
According to CARE Ratings report, the share of the gems & jewellery sector in the total credit exposure of banks to industries has been in the range of 2.5 per cent to 3 per cent.
The report says at the end of FY17, banks’ exposure to the gems & jewellery sector was at Rs 73,800 crore against Rs 72,700 crore at the end of FY16.
The move by bankers comes at a time when reports emerge that many public-sector lenders have huge exposure to the billionaire jeweller through PNB.