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
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
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
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.