Indian Banks Cracking Down On Defaulting Diamond Firms

(IDEX Online News) – With an estimated $450.5 million (Rs.20 billion) in loans now at risk, Indian banks are not prepared to cut financially troubled diamond manufacturing firms any slack now.

A few days ago, a consortium of banks led by the Bank of India, issued a public notice for the sale of assets belonging to Surat-based Kalsaria Diamond Private Limited (KDPL) to recover secured debts worth $54.74 million (Rs 2.43 billion).

The State Bank of India (SBI), one of the world’s largest diamond financing banks, is part of that consortium and told IDEX Online that it intended to initiate similar action against J.B. Diamonds and Pankaj Diamonds, two firms that have defaulted on bank loans.

At the end of October 2010, JB Diamonds defaulted on loans totaling $174.57 million (Rs.7.75 billion) from a consortium of 10 banks led by SBI. Pankaj Diamonds defaulted on $35.33 million (Rs.1.57 billion) in loans.

“There are still some legal formalities to be completed,” M.D. Lele, chief manager of the SBI’s Stressed Asset Management Division, told IDEX Online, “but once those are through — probably in two or three months’ time — we intend to auction the assets of these firms.”

Industry sources said that the auctions of assets would only fetch a fraction of the money due to the banks and one senior bank officer acknowledged that the rest of the money would have to be written off.

Bankers believe many diamantaires borrowed money during the economic downturn two years ago and diverted funds to other businesses in real estate and capital markets. While some of these other businesses were profitable, the diamond firms that were loaned the money were allowed to go under.

Currently banks are unable to recover much of the money because the successful businesses to which the money was diverted were established under the names of family members.