India's Biggest Bank Fraud Is Giving Jewelers a Headache

(Bloomberg) - In his 50 years as a jeweler, Pankaj Parekh has seen a few scams shake the credibility of India’s $60 billion gem and jewelry industry. The latest multibillion-dollar fraud will give banks the impetus to rein in credit for around 300,000 of his peers, he says. Already, Parekh’s business has come under increased scrutiny. One lender last week questioned the validity of a recurring expense charged by a gold supplier for 180 rupees ($2.80) on his books, he said. “To date, not once had my lender asked me about this charge,” Parekh said over the telephone from Kolkata, where his family-run jewelry export business is based. “But now, they are raising queries for everything.” It’s an unpleasant deja vu moment for India’s jewelers, who are involved in cutting or polishing 12 out of 14 diamonds sold in the world. The fraud estimated at $2 billion at one of the nation’s biggest banks, allegedly perpetrated by jewelry house owner Nirav Modi, is reminiscent of a diamond company that defaulted five years ago, leading to credit tightening for the industry, India’s second-biggest foreign exchange earner.