Troubled jewellery exporter Winsome Diamonds, which owes Rs 6,000 crore to a consortium of 15 lenders, may be declared as a "wilful defaulter" soon, a bank official has said. The Central Bank of India, which has an exposure of Rs 700 crore to the Jatin Mehta-promoted Winsome Diamonds & Jewellery, and another Rs 255 crore to its subsidiary Forever Precious Jewellery, is taking the lead in declaring the troubled company as wilful defaulter.
Confirming the development, a Central Bank official told PTI today that "Winsome was declared a fraudulent account sometime back, following which we sent out a notice to the company. The notice period got over on May 8. Since the answers were not satisfactory, we are going to declare the company as a wilful defaulter."
Also Read: Why is SBI going easy on Kingfisher?
"Normally under consortium lending, individual banks take such decision, which is later endorsed by the group of lenders as well. But in this case, we are doing it within this month," the official said. With Rs 1,800-crore exposure, Punjab National Bank is the leader of the 15-member consortium of lenders, who are mostly state-run banks. The others include Bank of India , Union Bank of India , Canara Bank , Vijaya Bank and IDBI Bank among others. The official said the due process required to be followed before declaring a company as a wilful defaulter has been completed and a statement on this will come anytime now. According to the officer, the first step is to ascertain that the company has committed a fraud and if declared a fraud the bank sends it a notice asking for a written explanation. If the company does not provide a satisfactory response, then the bank can declare it a wilful defaulter.
There was no immediate response to an email sent to the city-based company seeking a comment on the issue. The Reserve Bank defines "wilful defaulter" as the one which has defaulted in meeting its payment or repayment obligations even when it has the capacity to honour the obligations.
Last June, the lenders had declined to offer a CDR lifeline to the company as they doubted the genuineness of Winsome's claim that their business was in trouble. Following this the bankers ordered a forensic audit on the books of the company, which supported their belief that the borrower is a wilful defaulter.
Winsome group has taken loan worth Rs 6,000 crore, which included Rs 4,000 crore standby letters of credit to three global bullion banks -- Standard Chartered, Standard Bank of South Africa and Scotiabank. As the company failed to meet its obligations to these overseas lenders on time following defaults by its customers, the banks had encashed these LCs early last year.
The problem with the lenders is that they have only minimal collaterals from the borrower and a banker said this is just about Rs 400 crore. Out of this Central Bank has a collateral worth Rs 100 crore, the official added. Promoter Mehta resigned as Winsome chairman in 2012 and now mostly operates from Dubai and Singapore. The problem started after Winsome's Dubai-based clients defaulted on their payment, leading to Winsome also defaulting its payment to foreign banks, which in turn invoked one of the letters of credit, resulting in all the LCs being invoked even before the maturity period.
Central Bank stock price
On May 13, 2014, Central Bank of India closed at Rs 55.45, up Rs 2.20, or 4.13 percent. The 52-week high of the share was Rs 72.90 and the 52-week low was Rs 43.05.
The latest book value of the company is Rs 94.33 per share. At current value, the price-to-book value of the company was 0.59.
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