Banks shut doors on small jewellers post PNB scam


KOLKATA: Bank finance to small and medium jewellers, who constitute more than 80 per cent of the gold trade, has dried up as a fallout of the Nirav Modi-PNB scam. Banks are also demanding good credit ratings from them as a pre-requisite to getting loans. Nitin Khandelwal, chairman, All India Gem & Jewellery Trade Federation (GJF) told ET: “The smaller sized jewellers who were already being asked to shell out 100 per cent-125 per cent collaterals are now being denied funding from banks altogether.”

Khandelwal said that even small-sized loans worth per cent 10 crore are not being sanctioned. “Banks are now asking credit ratings from small and medium-sized jewellers. They are asking for BBB or A rating from jewellers for considering funding proposal,” he said. Lending to the gem & jewellery sector has remained a low priority area for several banks over the last couple of years with “diamond (cut and polished) being in the negative list”, a senior banker with a large public sector bank said.

“As a practice, we used to consider loan applications based on borrowers’ strength and creditworthiness. After the PNB scam, the purse string has been tightened,” the banker said. State Bank of India has kept its exposure to the gem and jewellery sector at around 13,000 crore for the past three years.

According to RBI’s annual report, exports of gems and jewellery had expanded post demonetisation despite facing a severe stress during the cash-ban period.

Figures from Gem & Jewellery Export Promotion Council show that overall exports from April to January of FY18 was worth per cent 2,18,411.66 crore, a marginal drop of 3 per cent over the same period last fiscal. Total credit outstanding to the sector as of December 2017 was 68,800 crore, which was about 1 per cent of 72.63 lakh crore gross bank credit. Stressed assets ratio for the banking sector as of September 2017 was 12.2 per cent while gems and jewellery sector reported 11.7 per cent stressed advances ratio, lower than the sample average, CARE Ratings said.

Source: Economic Times