MUMBAI: Bankers across India were probably blinded by the glitter of jewels and the glib charm of Mehul Choksi. By the time they sensed that Gitanjali Group, Choksi’s empire, was a smoking gun, it was too late.
A special report prepared by an external consultant, hired by anxious lenders last year, only deepened suspicions. The confidential report, titled Project Jewels and submitted in May 2017 by EY, talks about dealings between Gitanjali GemsBSE -4.92 % and group companies, inadequate records maintained by the listed entity, absence of provisions for doubtful debts, and delays in collection of dues.
Gitanjali Group companies together owe more than Rs 7,000 crore to around 35 banks, which includes some of the large state-owned lenders as well as the biggies among private sector banks. This is believed to be over and above the unrecovered credit through PNB’s secret letters of undertaking.
A month after the report, a senior manager of PNB’s Brady House branch in Mumbai, which is now in the eye of the storm, asked Gitanjali to provide an “updated net worth statement” of Priti Choksi, wife of Mehul Choksi. While the reason for this was not stated in the letter, banks typically ask promoter members who stand as guarantors to share details of wealth and assets. The letter was addressed to Kapil Khandelwal, joint president, banking and finance of Gitanjali Gems and copied to ICICI Bank.
Invoking personal guarantee is a pressure tactic banks employ to recover loans. But if assets underlying such guarantees are either insufficient or have been alienated, there’s not much that can be done,” said a senior banker.
The agency had pointed out that the company was not maintaining invoice-wise database for domestic collections and were knocking off the same on FIFO (first-in first-out basis). Also, there were no provisions for doubtful debts despite suffering bad debts in the previous three years. The Gitanjali management had clarified to EY that as a policy it extended longer periods for greater penetration in foreign markets (which accounted for 80% of jewellery sales).
Gitanjali Gems did not share sample of the ‘confirmation letter’ (that companies typically sent to debtors at the close of an accounting period) with EY officials. The correspondents for follow-ups with debtors were also not shared by the company. Some of its overseas customers, such as Good Mark Jewellery, Infinite Gems, Munic (DBA) and New York Diamonds had the same signatory. According to Gitanjali, this was because “the companies were being managed by the same accountant”.
However, the confirmation were stamped and signed by the signatories. The letterheads in the confirmations provided for six entities looked similar in terms of their structure. As per the management, this is in line with industry standards.”
After meeting some of the debtors of Gitanjali Gems, EY concluded that the company had no policy for providing for doubtful debts and had no proper processes and internal system to periodically assess the recoverability from debtors.
Of the Rs 7,000-odd crore outstanding loans to Gitanjali group, Gitanjali Gems owed about Rs 5,000 crore. Other borrowers included GECL (whose merger with Gitanjali Gems was approved a few years ago), Bezel (formerly, D’Damas), GILI, NBL, Asmi, Nakshatra World (formerly, Gitanjali Brands).
Banks, which are yet to fully provide for the exposure, are understood to be planning a forensic audit of Gitanjali. While this time-consuming and probably expensive exercise may track the flow of money, not many believe it would help in salvaging the loans.
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A month after the report, a senior manager of PNB’s Brady House branch in Mumbai, which is now in the eye of the storm, asked Gitanjali to provide an “updated net worth statement” of Priti Choksi, wife of Mehul Choksi. While the reason for this was not stated in the letter, banks typically ask promoter members who stand as guarantors to share details of wealth and assets. The letter was addressed to Kapil Khandelwal, joint president, banking and finance of Gitanjali Gems and copied to ICICI Bank.
Invoking personal guarantee is a pressure tactic banks employ to recover loans. But if assets underlying such guarantees are either insufficient or have been alienated, there’s not much that can be done,” said a senior banker.
The agency had pointed out that the company was not maintaining invoice-wise database for domestic collections and were knocking off the same on FIFO (first-in first-out basis). Also, there were no provisions for doubtful debts despite suffering bad debts in the previous three years. The Gitanjali management had clarified to EY that as a policy it extended longer periods for greater penetration in foreign markets (which accounted for 80% of jewellery sales).
Gitanjali Gems did not share sample of the ‘confirmation letter’ (that companies typically sent to debtors at the close of an accounting period) with EY officials. The correspondents for follow-ups with debtors were also not shared by the company. Some of its overseas customers, such as Good Mark Jewellery, Infinite Gems, Munic (DBA) and New York Diamonds had the same signatory. According to Gitanjali, this was because “the companies were being managed by the same accountant”.
However, the confirmation were stamped and signed by the signatories. The letterheads in the confirmations provided for six entities looked similar in terms of their structure. As per the management, this is in line with industry standards.”
After meeting some of the debtors of Gitanjali Gems, EY concluded that the company had no policy for providing for doubtful debts and had no proper processes and internal system to periodically assess the recoverability from debtors.
Of the Rs 7,000-odd crore outstanding loans to Gitanjali group, Gitanjali Gems owed about Rs 5,000 crore. Other borrowers included GECL (whose merger with Gitanjali Gems was approved a few years ago), Bezel (formerly, D’Damas), GILI, NBL, Asmi, Nakshatra World (formerly, Gitanjali Brands).
Banks, which are yet to fully provide for the exposure, are understood to be planning a forensic audit of Gitanjali. While this time-consuming and probably expensive exercise may track the flow of money, not many believe it would help in salvaging the loans.
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