PNB, scarred by the Modi-Choksi scam, to bankroll diamond houses again

Punjab National Bank (PNB), that was famously defrauded by diamantaire Nirav Modi and his uncle, also a diamantaire Mehul Choksi, of Rs 14,000 crore, has now made an internal decision to bankroll diamond houses again. After the scam came to the fore in 2018, the lender as well as other lenders, clamped down on loans to diamond houses. Banks turned overtly selective on borrowers and slashed credit limits.

Under the new policy, the public-sector bank has decided to give working capital as well as term loans to manufacturers of lab-grown stones against 100 per cent security and high internal rating of the borrower, according to a report by The Economic Times.

Lab-grown stones are replicas of the natural stones but cost a third or a quarter of the real ones. PNB’s new policy comes amid an uptick in demand for synthetic stones. Many jewellers have also set up factories in Surat. Moreover, the latest Union Budget also announced a cut in import duty on the basic raw material ‘diamond seed’.

The report stated that industry circles believe that PNB would extend a working capital credit of up to Rs 50 crore to borrowers with an internal risk rating of A3. Office and residential properties would serve as collateral.

Experts believe that while the import duty cut on diamond seed would have a minimal impact on the pricing of the final product, the government recognition and the identification of lab-grown stones as eco-friendly would boost demand and increase prices.

SBI has already started financing the sector, while IndusInd Bank is also, reportedly, looking to finance the sector.

Also read: PNB has Rs 7,000-cr exposure to Adani Group: MD