New Delhi: In a first of its kind analysis of topp 100 bank frauds, the Central Vigilance Commission found how Gems and Jewellery firms inflated the valuation of diamonds with intention to avail higher credits facilities from lenders, and taking advantage of loopholes in the system, avoided meeting the SBLC (Standby Letter of Credit) commitment on time.
"The companies deliberately inflated the valuation of diamonds with the malafide intention to avail higher credit facilities from the lenders and also to indicate the security coverage available with the lenders", Central Vigilance Commission said on Tuesday sharing with the RBI, the Enforcement Directorate and the CBI its analysis compiled in 47 pages.
The analysis focused on the methods used, amount involved, type of lending (consortium or individual), anomalies observed and loopholes that led to the frauds, along with recommendations to plug the gaps in the system.
The report in PDF form has also been uploaded on CVC website.
"Export bills which remained unpaid on due date were purchased by the consortium Banks. Simultaneously, the disruption of the cash flow led to the devolvement of SBLCs and outstanding of cash credit remained unpaid", the CVC said.
The CVC report was made public after a number of diamond merchants, including Nirav Modi and Mehul Choksi, fled the country leavng behind them thousands of crore rupees unpaid loans with banks and other lenders.
"The group of the companies informed that as their receivable were not being realized in time due to financial difficulties of the foreign buyers; they could not meet the SBLC (Standby Letter of Credit) commitment on time", the CVC report said.
"The details of receivable/debtors submitted by the companies to the bank in order to avail credit facilities appeared to be manipulated, false and fabricated", it added.
"The companies acted cleverly to avail entire pre-shipment as Standby Letter of credit instead of packing credit loans, for which consortium succumbed to their innovative funding ideas", the vigilance commission said in its report.
"The companies also resorted to availing post-shipment finance by discounting “Export Bills” from one of the member banks, while pre-shipment finance was obtained from another member bank by way of SBLC, leading to double financing", it said.
The CVC in its report suggested a number of measures which can be implemented for systemic improvement.
"There should be control of financers on movement of stocks. Genuineness of buyers should have been verified to ascertain whether buyer is capable of such a huge buying", it said.
"Banks should have exercised due diligence on the buyers and have executed a tri-partite agreement with the buyers and exporters to remit proceeds to bank account of the companies in India. Confidential Report (CR) on all foreign buyers should have been obtained/ analyzed", it said.
"Gem and Jewellery Sector credit facilities to these companies increased manifold within a short span of time in an effort by the banks to increase their credit dispensation. There should have been some segment related limits on such type of credit exposures", the CVC recommended in its report.
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