Twitter
Advertisement

Jewellery, gems most fraudulent sector

The first of its kind analysis found loopholes in the lending process, over-invoicing and fake bill discounting as modus operandi used by companies to divert bank finance from the core business.

Latest News
article-main
FacebookTwitterWhatsappLinkedin

The Central Vigilance Commission (CVC) has submitted a detailed report on the top 100 frauds in the banking system to the Reserve Bank of India (RBI) and the Economic Offences Wing (EOW) and the ministry of corporate affairs.

The first of its kind analysis found loopholes in the lending process, over-invoicing and fake bill discounting as modus operandi used by companies to divert bank finance from the core business.

The biggest banking fraud so far, the Rs 13,000 crore scam by Nirav Modi, was in the gems and jewellery segment. The CVC analysis mentions the sector as a major area of concern, followed by manufacturing, aviation, services and project, trading, the information technology sectors. Discounting of cheques and the fixed deposit frauds dominate the top 100 banking frauds in the country.

The commission says that in the gems and jewellery sector, three companies adopted a similar fraudulent business model. They imported gold or gems through foreign banks or private parties against a letter of credit or cash credit offered by a bank. The value-added jewellery was exported; the value of diamonds was inflated to get higher credit facilities.

"Export bills, which remained unpaid on the due date, were purchased by a consortium of banks," the analysis noted. "Simultaneously, the disruption of cash flow led to devolvement of Standby Letters of Credit (SBLCs) and outstanding cash credit remained unpaid. The companies then complained that their receivables are not being realized, but only after availing the pre-shipment as SBLC."

The manufacturing sector was another area where CVC studied frauds perpetrated by five companies in Pharmacy, Textiles and Ferrous metals. "One company made purchases to the tune of Rs 6,740 crore. Out of this, Rs 1,679.45 crore was for the purchase of fancy shirting," CVC noted. However, the commission was unable to confirm the physical movement of the material. Mismatches were found in products mentioned in invoice documents and products mentioned in the books of the company.

Across sectors, the commission found over-invoicing issues, fake bill of discounting and diversion of funds as the major concerns.

Top of the Frauds

  • Manufacturing, aviation, services and project, trading, IT are other sectors of concern
  • Discounting of cheques and fixed deposit frauds dominate the top 100 frauds 
  • Over-invoicing, fake bills of discounting and diversion of funds as other concerns
Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement