Public sector lender State Bank of India is trying to bring about uniformity in its lending practices to the gems and jewellery sector, where lending growth has been largely muted following incidence of frauds. SBI was working on a policy framework to standardise lending practices to the gems and jewellery sector and was looking forward to extend it to other banks through Indian Banks’ Association. PN Prasad, SBI’s deputy managing director, commercial clients group -1, told FE on the sidelines of an ICC session that at present SBI’s exposure to the gems and jewellery sector was Rs 20,000 crore and exposure to the diamond industry was Rs 5,800 crore. “This low exposure to the sector was mainly because of a distrust created between lender and the borrower,” Prasad said. While peak exposure to the sector never crossed Rs 25,000 crore, SBI has liberalised its lending policy to the sector after reviewing it every year.
”In most cases borrowers have not been compliant with the norms and not many revised proposals do come in after a proposal is rejected on non-compliance ground,” Prasad said, adding, “till 2008 SBI’s branch at Mumbai, catering exclusively to the diamond sector, had zero NPA. But lots of misery have happened to the banks for uncouth practices of the sector”.
Banks are comfortable to lend when there are transparency in issues like ownership, professional management, valuation, ratings exposure to insurance, reporting structure, quality and transaction. Around 60% -70% of the gems and jewellery units have moved to corporate structure. SBI is persuading for a neutral, impartial valuation policy for diamonds, while it is also looking for the Export Credit Guarantee Corporation (ECGC) to finalise the new policy for insurance cover.
ECGC policy for insurance cover, especially to the exporting MSMEs, is in the final stage of approval and a guarantee of 80% coverage of the exposure for exporters should put the banks at a comfortable zone. Banks were also looking for a credit guarantee scheme for the domestic players to be in a comfortable zone for lending, but lenders would be comfortable with both internal and external ratings, Prasad said.
In 2014, ECGC had imposed a restriction on insurance cover for banks, but the Union Ministry of Commerce and Industry, in September last year, has raised cover for banks through ECGC, up to 90% of the working capital loans.