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Gem and Jewellery industry to oppose credit squeeze on the industry post Nirav Mody fraud case

The Gems and Jewellery industry has urged bankers not to reduce their current credit limits as this would hamper and erode exports and employment creation, Gems Jewellery Export Promotion Council said  in a white paper to be released shortly.

The Council said it will release this paper in Mumbai on 11 May at a banking summit. The white paper, titled 'Diamond Financing 2018 New Challenges', has been compiled by GJEPC in consultation with the industry and banks.

The paper assumes significance as the Reserve Bank of India (RBI) in March banned the issuance of letters of undertaking (LoUs) and letters of comfort (LoCs), used extensively for trade finance, following the Nirav Modi fraud case.

In light of restrictions imposed by the RBI, the white paper focuses on key challenges faced by the bankers in financing the Gems and Jewellery industry and how to address them.

The paper will aim to address critical banking issues like assessment of credit limit, collateral security, related party transactions, inventory valuation, subsidiary financing guidelines, and is aimed at mitigating the concerns of the key stakeholders of the industry that has been hit by the recent fraud," it said in a statement.

The banking seminar would provide a forum to regain trust and ensure all bankers have a profitable experience in lending to this trade.

In the white paper, "the industry has requested bankers not to reduce their current credit limits as this would further hamper and erode exports of the country and hamper employment creation," it added.

Downgrading of the trade will further lead to spiking up costs such as interest, processing fee, which is financially not viable as Gems and Jewellery is a labor and working capital intensive industry.

Besides, a credit risk investigation team should 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 decisions, it added.

Further, the council said it has proposed collateral security based on a company's credit rating.

On stock evaluation, the council has proposed for at least one valuation in a financial year by external independent valuers.


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