TIME FOR A NEW DIAMOND LENDING POLICY BY BANKS
Mumbai, 6th February, 2017 (GPN) : In its golden jubilee year, the Gems & Jewellery Export Promotion Council (GJEPC) presented ‘Diamond Financing 2017: New Opportunities, New Realities’ seminar coinciding with the 2017 Presidents Meeting, the biannual gathering of the World Federation of Diamond Bourses (WFDB) . India polishes about 14 out of every 15 diamonds in the world; over 70% in value of diamonds globally and is a classic example of Make in India industry.
The dignitaries for the inaugural sessions of the third such financing seminar conducted by the GJEPC included Mr. Sudhir Mungantiwar (Hon. Finance Minister, Maharashtra State), Mr. Manoj Dwivedi (Jt. Secretary, Union Ministry of Commerce, Government of India), Mr. Praveenshankar Pandya (Chairman, GJEPC), Mr. Russell Mehta (Vice Chairman, GJEPC), Mr. P. S. Jaykumar (MD & CEO, Bank of Baroda), Mr. Karnam Sekar (Dy. MD & Chief Credit Officer, State Bank of India), Ernest Blom (WFDB President), Mr. Anoop Mehta (Chairperson, Bharat Diamond Bourse), Mr. Biju Patnaik (EVP, IndusInd Bank) and Mr. Ajesh Mehta [Convener, Banking, Insurance, Taxation Sub-Committee (BITC-GJEPC)].
Addressing the inaugural session, Shri Praveenshankar Pandya, Chairman, GJEPC, said, “The Indian diamond sector cuts and polishes a billion pieces and gets USD 6 bn from India and around USD 5.5 bn from international banking channels. The support of the banking & finance sector will be crucial for the future growth of the gem & jewellery sector. Different banks charged different rates which ranged between LIBOR + 2% to LIBOR +6%; and added to that were other charges. Banks using ECGC cover as that added to the burden and had, in some cases, raised the cost of finance by five times. There is a need for a standardized structure. The Summit will help create a better understanding in the banking sector of the unique nature of the diamond business and awareness in the trade about the changing compliance requirements affecting the cost of finance and due diligence parameters required to be adopted by the trade for maintaining a healthy portfolio of such financing of the sector. The mixed segment of the trade is facing twin challenges as they are engaged in manufacturing, outsourcing as well as retailing. The Summit will also emphasize on discussing alternative financing methods and options available globally as well as the risk implications and perspectives by the credit rating agencies.”
Shri Pandya added, “To make the sector further organised, and to enable banks to get concrete information to do the right due diligence while sanctioning credits, GJEPC has intensified measures for corporatization of MSME units in diamond cutting and polishing. Bankers have a great opportunity to provide financing for the MSME sector, which constitutes one third of the total business thereby bringing them to the mainstream. One of the important steps taken by the GJEPC to further improve transparency in transactions in the sector is starting a KYC online networking platform for the diamond industry. The project helps its members and global participants to maintain their Know Your Customer information on a centralized web-based platform and share it with other members online through important gem & jewellery associations of the world. GJEPC seeks the Government support to move towards a European Union turnover tax type model for the trade. We also seek the formation of a Banking Committee that meets regularly, engages the trade and gives direction to the gems and jewellery sector.”
Mr. Sudhir Mungantiwar (Hon. Finance Minister, Maharashtra State) said, “Maharashtra has always been supportive in terms of stimulating growth of the gems and jewellery sector. I shall communicate the key issues faced by the gems & jewellery sector to the Union Finance Minister and the State Chief Minister. I shall also convey the GST recommendations. Whenever there is requirement of engagement between the G&J industry and the FM of the state, I shall make myself available for a dialogue. I will urge the G&J industry to take few steps ahead to progress and will ensure that the Ministry also takes leaps for the growth of the industry. I will urge banks to come forward and provide financing options for the G&J industry.”
Shri Manoj Dwivedi, Joint Secretary, Union Ministry for Commerce, said, “India’s gem and jewellery sector ranks very highly in terms of priority for the Indian Government as it generates exports, foreign exchange and employment for over 4.5 million people overall and 1 million in the diamond business. Over 60% of the USD 40 bn exports in gems & jewellery in 2014-15 came only from diamonds. Export infrastructure has to be augmented and Union Finance Minister has announced that a new and restructured Central scheme, namely, Trade Infrastructure for Export Scheme (TIES) will be launched in 2017-18. Government is open to GJEPC’s proposals on upgrading & globalizing technology and skilling India. Government has launched several new schemes such as Cluster facility, Tech-Upgradation Scheme and state-of-the-art infrastructure. New schools of excellence such as IIGJ Varanasi will seek to encourage local craftsmanship and enterprise. Banking sector has to create customized solutions for the gem and jewellery business in terms of standardized structures, new credit rating parameters, a modified modern relevant version of ECGC, guidelines for minimizing risk and stimulating growth amongst MSMEs. NPAs amongst MSMEs are generally low and banks have to offer sops to MSME sector. GJEPC has taken several initiatives and the My KYC is an important step leveraging the power technology to empower the trade”
Mr. P. S. Jaykumar, MD & CEO, Bank of Baroda, said, “The trade should closely work with the banks to foster better engagement, dialogue and cooperation on key issues. Banks need to create specialized branches/ cells to understand the intricacies of the diamond business better. The trade has to support the banks to recover past dues.”
Mr. Karnam Sekar (Dy. MD & Chief Credit Officer, State Bank of India) said,” Many issues were exclusive and unique to the diamond business and banks have to approach them with an open mind. It’s time to moot the idea of a new diamond lending policy. MSME businesses in the gems & jewellery sector have to get priority. If the industry stands firm in supporting banks to get rid of defaults, then banks will stand firm in supporting the gems & jewellery sector.”
Ernest Blom (WFDB President) said, “Finance is oxygen for the gems & jewellery sector at this point of time. The global gems and jewellery business is facing liquidity issues and this has negatively impacted the trade. The new order has banks getting stricter in their lending policies and emphasizing on due diligence to mitigate risk. It’s time to introduce new financing models for the gems & jewellery business such as Peer to Peer (P2P) lending, Government supported lending schemes, etc. The trade has to change its operations in a similar vein. A Financing Task Force has to be set up including members of the trade from all centres and for continuous round table dialogues with the financial institutions so that real solutions could be found to any issues which arose.”
Mr. Anoop Mehta (Chairperson, Bharat Diamond Bourse), said, “The sheer scale and size of the diamond industry made it the safest sector for the banks to finance. Demonetisation by the Government of India (GoI) has also presented vast opportunities as more and more sections of the diamond industry were getting organised and getting digitalised. The Diamond Financing Summit will initiate a meaningful dialogue and speed up compliance to formalize and organize the sector players in a better fashion. Most of the larger firms have been getting the bulk of the financing but it’s time for the MSME to get their share now.”
Mr. Ajesh Mehta, Convener-BITC, GJEPC, said, “The Diamond Financing seminar will help to ensure that the gems and jewellery business has liquidity. The fluctuating demand and supply has led to price volatility and erratic sales. Banking regulations have changed since last few years and it has moved towards a collateral based system where risk perception matters a lot. India’s gem & jewellery businesses need financing support and Indian banks have to come forward to support them, especially the fast-growing MSMEs.”
A panel discussion conducted by Latha Venkatesh, Executive Editor CNBC-TV 18, which followed, with the participation of Mr. Pandya, Mr. Jaykumar, mr. Sekar, who were joined by Mr. Biju Patnaik, EVP IndusInd Bank and Mr. Russell Mehta, Vice Chairman GJEPC, discussed the various issues in an open and frank manner. There was a consensus amongst the panellists that there was a need for banks to do their due diligence carefully, understand the eco-system of the diamond industry and that the diamond trade should come forward to provide information inputs both, about the industry and the players within it.
Diamonds being high value products depend on financing, especially for the midstream (i.e. polishing) as rough diamonds are sold in cash while customer demand long (3-4 month) credit terms. Indian banks have supported the industry as it has grown to be a world leader in the midstream segment. However, banks have restrained themselves from lending to the gem and jewellery sector at a timr when margins have reduced and prices have become more volatile. Internationally, few large banks are withdrawing from the industry while some others are withdrawing credit lines due to reasons unrelated to the diamond business or compliance or Basel II restrictions. The international session at the Diamond Financing Summit will cover the changes affecting the financing available to the industry and alternates to bank financing, which can become potential means for new types of financing. In India, the bigger issue is distribution of the finance even as MSMEs struggle to access finance as their sales are not exports but to larger domestic companies, who in turn consolidate and export diamonds. With demonetization, a larger number of smaller unorganized units are looking to enter the formal banking and financing channels. For larger companies, the question is more about the cost of finance, rather than their availability. Part of the problem relates to how banks and rating agencies approach the risk management for the industry. Most nationalized banks only lend against a full credit insurance cover, which of late is not forthcoming. The Seminar will explore options as to how banks can work with the MSMEs in the sector to meet their requirements as well as examine how credit insurance and risk management mechanisms can be improved by the banks.
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