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India Trade Looks to Ease Banks’ Concerns

May 1, 2018 4:00 AM   By Joshua Freedman
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RAPAPORT... India’s diamond industry is working to produce guidelines for banks to reduce their risks when lending to the trade.

The nation’s Gem & Jewellery Export Promotion Council (GJEPC) has been collaborating with the government and lenders to create a written policy, Colin Shah, vice chairman of the trade body, told Rapaport News.

Representatives of the GJEPC will meet with 30 banks in Mumbai on May 11 to address their concerns about continuing their financial support of the sector in the wake of the Nirav Modi scandal, Shah added. The organization will publish the document following that summit.

India’s diamond trade has come under scrutiny since claims emerged in January that jewelry tycoon Modi and his uncle, Mehul Choksi, managing director of Gitanjali Gems, had defrauded Punjab National Bank of $2 billion. Traders fear tighter credit terms following the alleged scam, with the State Bank of India already introducing stricter collateral conditions shortly after the Modi investigation came to light.

Financial institutions have several concerns about the sector, including the potential devaluation of companies’ inventory, Shah explained. To that end, the GJEPC will use the meeting to advocate for the industry, while discussing how lenders can keep their risk level low, Shah explained.

“We’re trying to make sure good [companies] continue to get funding, as well as mitigating the costs to bankers,” Shah said.

Entitled “Diamond Financing 2018: New Challenges,” the document urges bankers to maintain current credit limits, since reducing them would further damage India’s diamond exports, the GJEPC explained in a preview on Tuesday.

The council proposes that a company’s inventory will be assessed at least once a year by an independent auditor, and recommends setting up a “credit-risk investigation team” to inform banks’ lending decisions. It also wants to introduce quarterly meetings between the GJEPC and banks to analyze firms’ key data.

The GJEPC is further lobbying the banks to set their credit limits in dollars rather than rupees to protect borrowers against currency fluctuation, and to base a company’s collateral requirements on its credit rating. Finally, the document will recommend that all companies sign up to My KYC Bank, a digital know-your-customer platform, to which lenders will also gain access.

The collaboration is the first time the GJEPC has worked together with banks to produce a document of this type, Shah noted.

Shah will represent the GJEPC at the meeting alongside Sanju Kothari of the GJEPC’s banking, insurance and taxation sub-committee. Paul Rowley, executive vice president of diamond trading at De Beers, will give a presentation to bankers on downstream demand, and will explain the miner’s financial-compliance standards. Suresh Prabhu, India’s minister of commerce and industry, will also attend the meeting, as will Commerce Secretary Rita Teaotia and Rajnish Kumar, chairman of the State Bank of India, Shah said.

Image: Jan Faukner/Shutterstock
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Tags: Banking, Banks, Colin Shah, Compliance, De Beers, defrauded Punjab National Bank, Gem and Jewellery Export Promotion Council, Gitanjali Gems, GJEPC, India, Joshua Freedman, Mehul Choksi, Nirav Modi, paul rowley, Rapaport News, Sanju Kothari, State Bank of India, Suresh Prabhu
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