With the PNB fraud – roughly estimated at over ₹12,700 crore – involving diamond traders Nirav Modi and Mehul Choksi casting a shadow over the industry’s credibility, gems and jewellery exporters have called upon bankers not to reduce their current credit limits as it would hamper exports.
Instead, they suggest that stricter collateral norms and inventory and subsidiary financing guidelines be put in place to reduce borrowing risks. The suggestions are part of a white paper to be released next week.
“We have worked on a white paper in consultation with lenders, including leading banks in the major areas of concerns, such as collateral norms and subsidiary financing. The guidelines suggested would ensure that good promoters are not choked for funds while the bankers’ concerns are also taken care of,” Colin Shah, Vice-Chairman, Gems & Jewellery Export Promotion Council (GJEPC), told
The white paper will be released in Mumbai on May 11 in the presence of Commerce & Industry Minister Suresh Prabhu, said Shah.
The RBI, on March 13, issued a notification disallowing issuance of Letters of Undertaking and Letters of Comfort for funding imports, as these were the tools used by the scamsters to siphon off money from PNB.
Cautioning against a downgrading of the trade, the paper says it might lead to an increase in costs such as interest and processing fee, which would financially not be viable for the industry as it is labour- and working capital-intensive, and has low margins.
The paper suggests that banks should look at the performance of the company and its business model. A credit risk investigation team should also be set up to track and provide intelligent information from the trade members, which can then be used by the bankers to take informed credit decision.