Not Punjab National Bank, the biggest victim of Nirav Modi’s scam is India’s jewellery business

The massive bank fraud allegedly perpetrated by jewellers Nirav Modi and Mehul Choksi is threatening a key segment of India’s economy, jeopardising at least 3,000 jobs.

While the narrative has till now centred on a handful of banks, it is India’s gems and jewellery business and its foreign trade that the $2 billion scam has hit the hardest, according to domestic ratings firm CARE Ratings.

As of December 2017, Modi’s Firestar Diamond and Choksi’s Gitanjali Gems alone accounted for 30% of the Rs 69,000 crore in bank loans to the gems and jewellery sector, CARE said in a report released on February 27. The duo’s dues would amount up to Rs 17,000 crore, much higher than the current estimate of Rs 12,700 crore, it said citing the two firms’ annual reports.

Stung by the Modi and Choksi fraud, banks have raised their guard while lending to jewellers. “Some ripple effects are bound to happen and…this could impact credit flow to the industry or cause delays in extending advances,” said Prakash Chandra Pincha, regional chairman, Gem and Jewellery Export Promotion Council.

The shutdown of the two companies would have an impact of 5% to 6% on the diamond and jewellery foreign trade in value terms over 2018-’19.

This could make a big dent on the trade which accounted for 13% of India’s total exports in the financial year 2017. “The shutdown of the two companies would have an impact of 5% to 6% on the diamond and jewellery foreign trade in value terms over the next year, i.e. 2018-19,” CARE said in its report.

The two companies alone accounted for a sixth of India’s Rs 1.17 lakh crore organised gems and jewellery market, according to CARE. Including the massive unorganised market, the sector rakes in an annual revenue of Rs 3.9 lakh crore.

Firestar and Gitanjali have informed employees of their inability to clear dues, leaving, in all, over 3,000 people in a limbo. This includes sales staff and craftsmen but excludes some 8,000 other temporary staff.

The CARE report was published days after India’s second-largest public lender unearthed what is now the country’s biggest banking fraud. On February 14, Punjab National Bank informed stock exchanges that it had discovered fraudulent transactions amounting to $2 billion to the benefit of Modi and Choksi.

This article first appeared on Quartz.