CAG digs out 500cr diamond export scam

NEW DELHI: A few diamond 'exporters' in league with government banks took loans against their shipments to Hong Kong where the buyers later went untraceable, resulting in the banks losing their advances. The loss in three years was upwards of Rs 500 crore.

Interestingly, the public sector banks later claimed these losses from a government-owned insurance company, Export Credit Guarantee Corporation of India Limited, which had provided cover to the banks against any 'unforeseen' losses.

In the case of at least 13 government banks, the insurance company paid 200% claims against the premium collected from them.

The findings are part of an audit report of the Comptroller and Auditor General of India (CAG) tabled in Parliament on Wednesday.

The federal auditor alerted the government against the possibility of these banks losing their creditworthiness for lack of due diligence in customer identification.

The CAG report revealed how the government insurance company repeatedly ignored the banks' failure to updated customers list.

"The consortium agreements among the banks to finance the exporters posed an enhanced credit risk and the insurance company had no mechanism to know of this arrangement except at the time of their filing the report of default," the CAG report said. Out of 29 claims examined in the audit, 26 involved nine banks under consortium arrangement and related to only one commodity, diamond.

"The banks had extended 477 advances to four exporters for a value of Rs 519 crore relating to diamond exports, which ultimately culminated in a claim of Rs 278 crore," it said on the sample audit examination.

Detailed examination of advances showed that 240 advances were extended to exporters involving Hong Kong-based buyers, accounting for claims of Rs 170 crore. The same individuals were either owners or chief executive officers representing more than one buyer

I don't know how much to thank CAG.

It is doing a very good job.

I would suggest its scope be widened to also include Public Ltd Companies. Then frauds like those of Satyam would be nipped in the bud.

In the present set up the auditors depend upon the companies for their fees and so are made to jump to their tune.