LONDON – Union Bank of India is pulling out of the global diamond hub of Antwerp, joining a retreat of lenders from the industry, which has been hit by fraud and bad debt.

The bank has given notice that it will close its branch in the Belgian port city within a year, according to CEO Rajkiran Rai Gundyadka.

Antwerp didn’t generate “the expected amount of business, particularly from the diamond sector,” Gundyadka said. “The viability of the branch isn’t established.”

Diamond financing is facing a crisis as bad loans and high-risk bets come back to haunt the industry. Western banks have led the retreat in recent years, with Antwerp Diamond Bank and Standard Chartered pulling out of lending. Indian lenders had largely filled the void, until earlier this year when the diamond industry was hit by the sub-continent’s biggest ever fraud.

In February, Nirav Modi and Mehul Choksi were implicated in an alleged $2-billion fraud involving the use of fake guarantees from Punjab National Bank to solicit loans that rocked India’s banking industry. Diamond tycoon Modi and his uncle Choksi deny any wrongdoing.

The diamond midstream, dominated by Indian and Jewish family businesses, makes up the invisible link between African mines and jewelry stores in New York, London and Hong Kong. The companies are heavily dependent on trade finance to buy rough stones, yet that money is drying up. The industry is now being hit by Indian banks cutting back on their foreign operations due to issues with bad loans.

Total lending to the midstream has fallen from $16-billion in 2013 to just over $13-billion last year and is forecast to drop below $11 billion in the next couple of years, according to Dfin, a London-based corporate finance firm specializing in the diamond sector.

Union Bank started operating in Antwerp four years ago, when it said it would dedicate a fifth of its $200-million loan book to diamonds in the first year. Antwerp, which handles about four-fifths of the world’s rough diamonds, has strong trade links with India and imports most of its polished stones by carat from the Asian country, according to the Antwerp World Diamond Center.