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Bank lending to jewellery sector revives

The total loan outstanding of banks to the sector as of end March 2019 was Rs 72,000 crore, de-growing 3.9% over the previous year

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Banks, which had stopped lending to the gems and jewellery sector after the Nirav Modi scam, have started lending selectively. 

The total bank loan outstanding to the sector as of end March 2019 was Rs 72,000 crore, de-growing 3.9% over the previous year, according to the latest data put out by Reserve Bank of India. 

In the year-ago period, the de-growth was around 7.4%, with the gross outstanding bank finance to the sector at Rs 69,400 crore. While cash credits against stocks are no longer provided, banks are preferring to give gold loans with gold as collateral.

GOLD STANDARD

  • The total loan outstanding of banks to the sector as of end March 2019 was Rs 72,000 crore, de-growing 3.9% over the previous year
     
  • While cash credits against stocks is no longer provided, banks prefer giving loans with gold as a collateral

“Immediately after the scam there was a complete clampdown of credit, but now the private banks like IndusInd Bank, Kotak Mahindra Bank and some public sector banks have started to service the sector,” said a diamond exporter, who did not want to be quoted.

Banks call for more transparency, while the gems and jewellery segment needs more finance to meet the export demands. “The gems and jewellery sector needs to be more transparent. Banks are open to financing the sector and the industry must put in place a robust, transparent system and a discipline in place,” Kewal Handa, chairman, Union Bank of India, said speaking at Manthan, a gems and jewellery conclave. A large number of frauds in the sector like Winsome Diamonds, Shrenuj Diamonds and the Rs 13,500 crore scam by diamantaires Nirav Modi and Mehul Choksi has made it very difficult for banks to identify the genuine customers.

While the industry is demanding organised funding, banks say it has gone up over the years. “From about 22% a few years back, now about 42% of the finance to the sector is organised,” said Biju Patnaik, executive vice-president and head, IndusInd Bank.  This is expected to increase to 52%.

“Banks have brought down the exposure limits to various companies, which is hitting the diamond exporters. Even if there are export orders, it is difficult to meet the demand when finance is tight,” said another diamond exporter.

“Most of the public sector banks have stopped giving cash credits against stocks, instead the majority of the loans are given as gold loans, where gold is kept as collateral,” said a banker from a public sector bank.

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