Winsome Diamonds turn defaulters, lenders tighten screw

Winsome Diamonds could be the next big non-performing asset (NPA) on the books of 15 banks. After rating agencies downgraded the Rs 4,000 crore Winsome Diamonds, lenders say payments could be delayed, but they are confident of recovering dues from the company, CNBC-TV18's Gopika Gopakumar reports.

Windsome Diamonds had purchased gold from 3 bullion banks, including Scotiabank, Standard Bank and Standard Chartered Bank and in turn raised letters of credit from 15 Indian banks in favour of these foreign banks.
The problem started after the company's Dubai based customers delayed on their payment and this resulted in the company defaulting on its payment to the foreign banks. The foreign banks in turn invoked one of the letters of credit and this resulted in all the letters of credit being invoked even before the maturity period.
So, Indian banks are now stuck with this debt because they will now have to honour all the letters of credit even before the maturity period and this amounts to around Rs 4000 crore. Now, this is as per the agreement which has been signed between the company and the foreign banks.
If the banks fail to recover their dues before June-end, then Winsome will become an non-performing asset (NPA) on the books of banks. However, banks remain confident that they will be able to recover these dues from the company as they have enough bills which will be able to ensure that recovery is possible. Let us hear out what one of the bankers had to say.
VR Iyer, CMD, Bank Of India says, "We held lenders' meetings twice in the last 15 days. A team of lenders is going to Dubai to check on security and payment. All banks have bills for collection, which is good. The payment may be slightly delayed."
Iyer adds, "We will certainly receive those payments, not an immediate huge concern, but definitely, some amount of anxiety exists. Borrower has indicated full cooperation to us on regularising and maybe that account can up for restructuring. All of us have adequate securities and also bills for collection."

Banks led by Punjab National Bank (PNB), which has one of the largest exposure to Winsome of around Rs 1,800 crore have sent teams to Dubai to look into the company’s overseas buyers. They are also looking into the kind of security and the bills provided by the buyers.

Sources in Reserve Bank of India (RBI) are worried that banks are taking such a big exposure without adequate collateral or adequate margins against the company. But banks remain confident and defend the client because they feel that Winsome is an old client and they will be able to honour the payments to the banks.