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Winsome Diamonds: Another 7,000 Crore Default

These figures astound me. Winsome Diamonds, a jewellery exporter, has defauted on loans to buy gold and the figures run up to a mammoth 7,000 crore. Says Indian Express:

A team of bankers is visiting Dubai to find out the reasons for loan repayment default by Mumbai-based Winsome Diamonds and Jewellery after the company claimed that it could not clear dues as its Gulf customers failed to pay instalments. "A team of bankers is visiting Dubai to find out the actual position. The exposure of the banks is around Rs 7,000 crore," Oriental Bank of Commerce Chairman and Managing Director S L Bansal said.

Yesterday, Crisil downgraded the rating of the company to ‘D’ and placed it under watch list in view of continuous default of the company’s overseas customers and consequent development of Letters of Credit (LCs).

Crisil’s note states that the company’s been crippled since March, and it has had some Letters of Credit invoked. (typically an exporter borrows from a foreign bank to pay suppliers, and that loan is guaranteed by an Indian bank as export credit – when Winsome couldn’t pay up, the guarantees were invoked and now the Indian banks are on the hook for it)

The exposure is to PNB (1,800 cr.), Canara Bank, Vijaya Bank, Union Bank of India, Central Bank of India, Bank of India and OBC.

The company used to be called Su-raj diamonds earlier. Given that they have a number of manufacturing facilities it’s likely the banks can acquire and sell these to recover some of their money. However, I expect that will take years, and banks will delay it as much as possible. The RBI is likely to let banks take the hit over a considerable amount of time – over three years or such. The scale of it, though, is astounding.