NPAs in Q4 to rise by Rs 8,000 cr on account of Gitanjali Gems

Non performing assets (NPAs) or bad loans in the banking sector are set to shoot up by at least Rs 8,000 crore as advances to the scam-hit Gitanjali Gems group have turned bad during the quarter ended March 31. Banks will have to make provisioning of Rs 8,000 crore for Gitanjali alone as there has been no servicing of the working capital loan during the fourth quarter of last fiscal, sources said. Gitanjali, among others, is the major account which has turned bad in the fourth quarter of 2017-18. Gross NPAs of all the banks in the country amounted to Rs 8,40,958 crore in December, led by industry loans followed by services and agriculture sectors, as per the government estimates.

Gitanjali is promoted by Mehul Choksi, uncle of billionaire diamantaire Nirav Modi, who defrauded Punjab National Bank (PNB) of over Rs 13,000 crore by getting fake Letters of Undertaking/Credit (LoU/LoCs) issued from one of the bank's branches in Mumbai. A special CBI court in Mumbai has issued non-bailable warrants (NBWs) against Modi as well as Choksi. A consortium of 21 banks led by Allahabad Bank had first extended working capital loan to it in 2010-11. In 2014, ICICI Bank became the lead banker as it had highest exposure of about Rs 900 crore and in line with the revised guidelines of the Reserve Bank of India.

Till December 2017, the loans to Gitanjali Gems were standard and regular debt servicing was being done. There is no servicing of debt in the last quarter ended March 31, so it has to be declared NPA by all banks, said a senior bank official of the consortium. In 2015, the consortium had restructured working capital loans given to Gitanjali under the joint lenders' forum (JLF) mechanism. The Gitanjali exposure was classified as a special mention account-2 (SMA-2) in 2014 after the company failed to fulfil its payment obligations for more than 60 days, triggering the formation of a JLF.

As a result, the company announced consolidation of the business at the group level to improve cash flows and reduce costs in various activities such as sourcing, manufacturing, distribution, exporting and retailing. It proposed the merger of three of its subsidiaries Asmi Jewellery India and Spectrum Jewellery with Nakshatra Brands and also the merger of Gitanjali Jewellery Retail and Gitanjali Lifestyle with GILI India. Different investigating agencies, including CBI, I-T and Enforcement Directorate, are probing the fraud, which came to light in January, dubbed as the biggest banking scam in the country.
PNB had issued as many as 1,590 LoUs to Modi, Choksi and their associates.

The total number of LoUs issued to the companies of Modi, his relatives and the Nirav Modi Group are 1,213, while those to Choksi, his relatives and the Gitanjali Group are 377.