Credit Risk A Rising Concern

As Banks Have Become More Cautious About Their Lending Procedures Due to Mounting Non-performing Assets (Npas), Credit Availability Remains a Constraining Factor for the Gem and Jewellery Industry. Citing Lack of Transparency in the Industry, the Bankers Are Reluctant to Finance Any Gj Business to a Large Extent. However, the Industry Wants Bankers to Initiate Procedures to Share and Adopt Best Practices for Each Others to Minimise Their Risks. Already Paying the Higher Interest Rates on Business Loans Than Other Sectors, the Industry Is Suffering Big-time in This Financial Tug-of-war. Aoj’s Praveer Sinha Finds Out More About the Ongoing Credit Crisis in the Industry.

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Infusion of more funds into the gem and jewellery industry has become a matter of prime concern, as banks have decided to keep the sector into the high-risk category. Moreover, rising NPA’s and a drop in loan take-off are among other major issues afflicting the jewellery trade. The domestic industry has been facing problem in accessing bank loan since 2013, when the government restricted gold imports to bridge the widening current account deficit (CAD). Earlier, jewellers used to get bank loans at two to four per cent. With the government’s restrictions, banks increased it to 18 per cent and levied penal interest of three per cent on defaulters. According to the Reserve Bank India (RBI) data, the sectoral deployment of bank credit to the gem and jewellery industry amounts to Rs 68,600 crore in December 2016, which was Rs 70,600 crore in December, 2015. The fall in banks exposure has been keeping the GJ industry in a state of unrest. The frequent changes in the government policies related to lending too are compelling the once easygoing industry to device new survival strategies in terms of securing credit.

Rising NPAs in GJ sector

Availability of bank finance to the jewellery industry has shrunk drastically after the NPA crisis in the industry. According to Finance Ministry data, about 5.3 per cent of public sectors banks’ exposure to the GJ industry was non performing in March 2013. In 21 months, by December 2014, this had grown to 14.4 percent.