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Indian Banks Slash Lending by 10%
Jul 24, 2018 8:54 AM
By Rapaport News
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RAPAPORT... Bank financing to India’s gem and jewelry sector has fallen
at least 10% since April 1 due to stricter lending conditions, according to the trade’s export-promotion body.
Credit providers tightened their rules after allegations in
January that jewelry tycoon Nirav Modi had defrauded Punjab National Bank of $2
billion. Financial institutions have been requiring higher collateral levels since the scandal, the Gem & Jewellery Export Promotion Council (GJEPC) explained Tuesday.
In addition, lenders that offer “discounting” — giving
companies an advance on their customers’ unpaid bills — are increasingly insisting on clearing all the relevant invoices. Borrowers must gives invoices to their bank, which sends the documents on to the buyer’s bank. That means sellers only receive payment, and buyers only receive the goods, once both lenders have given their approval. That requirement is
damaging traders’ relationships with their customers and restricting cash flow,
the council added.
Meanwhile, banks have stopped offering discounts for the sector when charging fees for assessing borrowers before granting a loan, the GJEPC noted.
“The industry is witnessing a crisis of sorts, as the banks
have curtailed lending to the traders, and [are] demanding collateral security
and extensive documentation,” said GJEPC chairman Pramod Agrawal. “We are
hoping that the government will intervene and bring some relief to the ailing
industry that contributes 7% to [gross domestic product].”
India’s gem-and-jewelry exports will also decline 10% in the
fiscal year ending March 2019 as the credit situation will adversely affect the
sector, the GJEPC predicted. Shipments out of India fell 9% year on year to
$10.1 billion for the industry in the April-to-June period, it added.
The GJEPC took measures in May to deal with the crisis,
including launching a digital know-your-customer platform, MyKYC, and
publishing a policy document outlining how the jewelry and banking industries
can reduce risk.
Agrawal has also called on the government to offer the
industry an interest-subvention scheme, in which the state helps borrowers with
their interest payments.
Image: Wael Khalill Alfuzai/Shutterstock
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Tags:
bank, Banks, cash flow, credit, discounting, exports, Gem & Jewellery Export Promotion Council, gem-and-jewelry exports, GJEPC, India, interest-subvention scheme, Jewelry, lending, Modi, MyKYC, Nirav Modi, Pramod Agrawal, Punjab National Bank, Rapaport News
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