New Delhi: The parallels between the Nirav Modi-case and Winsome Diamonds - the original diamond headache of banks - are not hard to miss. Both are owned by high-profile diamond merchants who fled the country after credits went sour, while the state-run banks bore the brunt of huge losses.
"After the horse bolted once, bankers should have exercised far greater caution," said Sanjay Bhattacharyya, former managing director of the State Bank of India.
Like Nirav, Winsome's Jatin Mehta had taken standby letters of credit on which he reneged before fleeing. Though the losers in the more than Rs 6,500-crore case were a consortium of banks - the biggest hit was Delhi-based Punjab National Bank.
Both Nirav and Mehta have their roots in Gujarat's Palanpur.
In the early years of this century, Jatin Mehta was the darling of the banking world. He took buyer's credit to purchase gold, turned it around into diamond-studded jewellery and paid back the money. His firms - Winsome, Su-Raj & Forever Diamonds - enjoyed high credit and their limits kept getting extended.
Indian banks issued standby letters of credit, similar to guarantees, in favour of international bullion banks such as Standard of South Africa, Standard Chartered, London, and Scotiabank, which supplied gold to Mehta's Winsome Group.
By 2012, months before the bubble burst, banks had collectively given Rs 4,366 crore to Winsome Diamonds & Jewellery Ltd, Rs 1,932 crore to Forever Precious Jewellery and Diamond and Rs 283 crore to Su-Raj Diamonds as buyer's credit.
In November 2012, Mehta said he couldn't pay back as his customers - UAE jewellers - were hit by derivatives losses and unable to pay him. Mehta subsequently resigned from his firms and left India in 2016. He is believed to have obtained a citizenship of St Kitts & Nevis.
Bankers kept knocking on Winsome's doors, hoping for a settlement. Ultimately, in 2013, they realised that this was a deal gone sour and declared their outstanding credit as bad loan and declared Mehta a wilful defaulter.
By early 2014, bankers took the case to the CBI, who along with Mumbai police raided Winsome directors and its offices. For three years, the agency investigated the case without making any arrests. Of the banks which took the hit, Punjab National Bank suffered the biggest loss - more than Rs 1,700 crore. Other banks losing money included Central Bank of India (Rs 699.54 crore) and IDBI (Rs 388 crore).
"The two cases are similar in some ways. Both took credit lines without giving any collateral. The difference was that in one case the loans were officially made, in the Nirav- Modi case they were fraudulently given," points out Bhattacharyya.
Analysts say that once bitten, banks should have immediately placed most of their gems and jewellery credit lines on the scanner and checked their exposure to each client and the latter's ability to pay back.
To complicate matters, in 2015, Winsome Group firms filed cases in the Sharjah Federal Court, arguing that its companies had suffered a business loss of $1 billion as the 13 UAE-based jewellery firms which acted as its distributors had defaulted in payments. The Sharjah court ruled in favour of Winsome Diamonds and Forever Precious Jewellery.
On April 5, 2017, the CBI registered six separate cases against Winsome Diamonds and Jewellery Limited, Forever Precious Jewellery and Diamond Limited and their chief promoter Jatin Mehta for allegedly cheating three government banks of Rs 1,530 crore.
In May 2017, the UAE's appellate court upheld the Sharjah court's verdict. The 13 firms then took the case to the UAE's Supreme Court. Neither the CBI nor Indian banks had any role to play in this case and have to just wait it out.
Which way the Nirav Modi case will go will be revealed in the weeks ahead.
However, for now, both Modi and Mehta own firms in India that are unable to pay back to the Indian banks while both are living abroad despite the attempts of agencies to track them.
