Non-performing assets 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 financial year, 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 of over Rs 13,000 crore by getting fake Letters of Undertaking/Credit issued from one of the bank’s branches in Mumbai. PNB had issued as many as 1,590 LoUs to Modi, Choksi and their associates.
A special Central Bureau of Investigation court in Mumbai has issued non-bailable warrants against Modi as well as Choksi.
Also Read: Mumbai Court Issues Non-Bailable Warrant Against Nirav Modi And Mehul Choksi On CBI’s Request
A consortium of 21 banks led by Allahabad Bank had first extended working capital loans to Gitanjali Gems in 2010-11. In 2014, ICICI Bank became the jeweller’s lead banker as it had highest exposure of about Rs 900 crore.
Till December 2017, the loans to Gitanjali Gems were standard and regular debt servicing was being done. There was 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 mechanism.
The Gitanjali exposure was classified as a special mention account-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 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.