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Banks tighten money lending rules for Jewellers

The gems and jewellery industry is finding it difficult to get credit from the nationalized and private banks with lenders tightening the norms for the borrowers from the sector.  

Small firms in fix as banks seek more collateral for loans. Sources in the industry said the banks are asking for more than 50 per cent collateral to back the existing borrowing or reduce the size of it in a time-bound manner, which the small unit owners are unable to provide.

Recently, the State Bank of India (SBI), one of the largest lenders in the industry, asked the borrowers to give more collaterals and reduce the size of the credit lines. The decision was driven by the board, which directed the management to plug the gaps in risk mitigation system, especially for borrowers in the jewellery sector, who are in the eye of the storm after the Nirav Modi-led `12,300 crore scam.

Last month, the Bank of Baroda (BOB) directed all its branches and regional heads across the country not to issue fresh letter of comfort (LOC) and letter of undertaking (LoU) to borrowers. Sources said the banks have raised the collateral levels to at least 50 per cent of the loan value or cut the size of the borrowing by half. For the borrowers from gems and jewellery sector, the banks were earlier sanctioning loans on easier terms with 10-15 per cent collateral.

Diamond analyst Aniruddha Lidbide said, “Even the big diamond companies have been axed in their yearly credit lines. Most of the banks have cut the credit facilities and have asked the diamond companies to clear the pending dues and provide more than 50 per cent collateral for the fresh loans.” He added, “This is going to increase the trouble of the diamond companies, especially the small and medium ones, who are solely dependent on the bank finances for purchasing rough diamonds from Belgium and Dubai. The big diamond companies will have less credit lines, which will ultimately impact on the rough diamond sales by the mining companies.”

India is world’s largest diamond manufacturing centre with the annual import of rough diamonds totalling to over $18 billion. Around 75 per cent of the rough diamonds imported in India are sold by world’s leading diamond mining companies, including De Beers, Alrosa, Rio Tinto, etc. Regional chairman of gems and jewellery export promotion council (GJEPC) Dinesh Navadiya said, “We have been in regular touch with the bankers for not implementing tougher rules for gems and jewellery sector. The entire business model of the diamond sector is dependent on money borrowed from the banks. Worldwide, the banks have finances amounting to over $16 billion to the gems and jewellery industry.”

Courtesy: Times of India