Country’s major lender State Bank of India (SBI) is recasting its credit plan to jewelers following insolvencies and scams. The banking institution proposes exposure capitals of Rs 100 crore and Rs 250 crore for single and corporate borrowers, respectively.
What changes have been made by SBI
It proposes to lend a significant portion as gold loans, instead of the usual cash credit against stocks — a proposal, which could defend better screening of the end-use of funds but may leave several borrowers with working capital crux. According to the new offer, security (in cash form and enforceable immovable property) would also be lifted up for poorly-assessed borrowers and new clients.
As per senior SBI functionary, the credit plan for the gems and jewelry segment is under appraisal. Mr. Lalit Bajaj, adviser to the gems and jewelry business, some conditions being suggested by the banking institution are not effective.
In addition to its experience with delinquent clients, SBI’s plan review is influenced by features of the gems and jewelry business —high dependence on imports, instability in raw material value, dependence on temporary funding for upfront payment to suppliers and client likings that are shifting in the direction of machine-made jewels.
SBI’s jewellery funding would get restrained
State Bank of India funding of jewellery would be restrained to hand-picked divisions. Diamond houses are being told to route documents for a big portion of the trade via banking institutions, in place of accompanying the early rule of ‘direct bills’ where small, but highvalued cargoes, are flown straight to associates or clients out of the country. At the present time, the ‘direct bill’ method allows the business to save cost.
Whilst the reviewed rules would be valid to novel borrowers shortly after regulations get finalised, prevailing clienteles, as per the proposal, would be offered time till March 2020 to move to the gold loan facility. But the industry thinks that the rules are too restraining.
As per a person in the jewellery segment, the CC stocks limit should not be completely transformed into gold credit, as they deal in other stocks like jewels, cut and uncut diamonds and pearls. In addition, it’s a labour-intensive biz.