Bank lending to the gems & jewellery industry fell by Rs 600 crore in FY19, and further nosedived by Rs 12,500 crore in FY20.
The Nirav Modi and Mehul Choksi-PNB scam continues to haunt the gems and jewellery industry even two-and-a-half years later, with banks unwilling to lend money to the sector. The bank lending to the gems and jewellery industry is on a consistent fall since the Rs 23,780 crore financial scam broke out in January 2018, involving large loans given to Nirav Modi and Mehul Choksi’s firms by the Punjab National Bank. As on March 30, 2018, outstanding credit to this industry stood at Rs 72,700 crore, Care Ratings said in a report. It fell by Rs 600 crore in FY19, and further nosedived by Rs 12,500 crore in FY20, the report added. As on March 27, 2020, outstanding credit to this industry stood at Rs 59,500 crore. Such cautious bank lending can create further stress on liquidity, it added.
The adverse effect of cautious and reduced bank lending is more evident on unorganised and small scale players, which depend more on bank credit to smoothly run operations. “Most jewellers used the gold loan product offered by banks as that gave them cheap working capital. But with the continuously increasing gold rates and the tighter unwillingness of the banks to work with the sector, it has become very difficult to obtain such credit lines,” Rohan Sharma, Managing Director, RK Jewellers, South Extension 2, told Financial Express Online. NPAs caused due to Nirav Modi and Mehul Choksi scam, along with the government’s policies to discourage the growth of this sector, have become a major roadblock for the gems and jewellery sector, he added. The government should realise that it is an industry that accounts for a lot of exports too, he added.
Industry players also complain that the banks have intentionally cut down lending for the diamond industry, which has made businesses very difficult as the rough diamonds are to be bought in cash terms whereas the polished diamonds after cutting and polishing are sold on credit. Meanwhile, the coronavirus lockdown has severely hit the jewellery business in India. The gold imports in May have fallen by 99 per cent on-year, Reuters reported citing a government source. India, which is the world’s second-largest gold consumer imported only around 1.4 tonnes of gold in May, compared to 133.6 tonnes a year ago.