Feb 06, 2017

Diamond Financing 2017: New Opportunities New Realities (Part 1)

The seminar organised by The Gem & Jewellery Export Promotion Council (GJEPC) – Diamond Financing 2017: New Opportunities New Realities – was held today as part of the WFDB  Presidents’ Meeting 2017 being held in Mumbai.

The seminar was inaugurated by  Hon’ble Shri Sudhir Mungantiwar, Minister of Finance, Planning and Forest Departments of the state of Maharashtra.

Speaking at the event, the Minister praised the  gems and jewellery industry for its contribution to the economy of the country which he said amounted to  6% of India’s  GDP; for its contribution to foreign exchange earnings and its generation of large scale employment  opportunities.

Shri Mungantiwar also promised to support the industry and extend all help to ensure further growth   in line with the Hon’ble PM of India’s vision  of skilling India and increasing employment in the country.

He said he would positively consider the request made by Chairman of the GJEPC    Praveenshankar Pandya to waive GST on rough diamonds, which Pandya had said were the raw material for exports.

Earlier in the  day, the seminar got underway with opening remarks by Anoop Mehta, President Bharat Diamond Bourse.

Mehta emphasised that the sheer scale and size of the diamond industry made it the safest sector for the banks to finance. He said that the demonetisation by the Government of India (GoI) has also presented vast opportunities as more and more sections of the diamond  industry were  getting organised and getting digitalised. He asked banks to specially look to the requirements of the Micro, Small and Medium Enterprises (MSMEs). He also spoke of the efforts being made by the BDB and the GJEPC to provide the necessary information and support for MSMEs to become compliant and move towards a cashless system of transactions within the diamond industry.

 Ernest (Ernie) Blom, President World Federation of Diamond Bourses (WFDB), calling finance the “oxygen” of any business said that the diamond industry worldwide did not have access to adequate financing as several  banks financing the industry  had either withdrawn or reduced exposure to the industry. He stressed that the vast majority of diamantaires were honest and law abiding and worked within the framework of all regulations. He called for a Financing Task Force to be set up including members of the trade from all centres and for continuous round table dialogues with the financial institutions so that real solutions could be found to any issues which arose.

Chairman of GJEPC said that finance was one of the  key issues of concern to the diamond industry.  He said that the mid-segment --  the manufacturing centres -- had borne the burden of financing with regards to both ends of the pipeline. The diamond manufacturers paid advance to the mining companies from which they procured their rough and gave retailers credit of 90 days and more. He said that the worldwide diamond  industry received about US$ 6 billion worth of financing in India and about US$ 5-5.5 billion in other international centres.

Pandya  stressed that there was a need for financial institutions to understand the industry, and to build proper structures. Different banks charged different rates which ranged between LIBOR + 2% to LIBOR +6%; and added to that were other charges. The cost of financing is exorbitant, he stated. He also raised the issue of banks using ECGC cover as that added to the  burden and had, in some cases, raised the cost of finance by five times.

He also made a plea for financial institutions to come forward to finance the MSME sector, which, he said,  are the backbone of the diamond industry.

Ajesh Mehta, Convenor of the GJEPC’s Banking, Insurance, Taxation Sub-Committee, said post the financial crisis of 2008 , the diamond industry faced many challenges. One of the changes in the financing area was that banks had moved from need-based financing to collateral based financing. He also noted  that post-demonetisation, the MSME sector was facing hardships and said they now need support as they formalise their functioning.

 P.S. Jaykumar, MD  &  CEO of the Bank of Baroda (BoB),  said that while at a general level, the case for increased finance was well made by the diamond industry, and there were many  encouraging trends, pointed out that for his bank, the NPAs in the diamond industry were double the average figure, which itself was on the higher side.  He asked the industry to come forward to help   banks recover their bad debts and deal with wilful defaulters. 

State Bank of India’s Deputy Managing Director and Chief Credit Officer Karnam Sekar, welcomed the dialogue between the industry and the trade. Citing the example of his own bank which has been extending credit to the  diamond sector for over three decades, he  said that till 10 years back, there was not a single NPA related to this industry. He stressed it was essential to understand the industry and for a lending institution to invest in doing so. Sekar said that his bank had a dynamic approach and reviewed their policy to the sector every year, taking into account the situation within the industry. He pointed out that his bank already had a large exposure – about 35%-40% of its portfolio – to MSMEs within the diamond sector.  He ended by saying that if the industry is strong, the banks are strong, and hence the interests of both were tied up. 

Joint Secretary, Commerce, GoI, Shri anoj Dwivedi  said that the gems and jewellery sector has done very well in the last few years.   He said total employment in the sector stood at around 4.5 million and the diamond industry alone employed a workforce of around one million people.  Though a large section of the industry was in the unorganised sector, he said that organisations like the GJEPC and BDB had taken much effort to streamline the functioning of the  industry.   He sited various measures taken by the GoI like interest subvention, facilitation of cluster development and the move to set up Common Facility Centres (CFCs) which would go a long way in boosting the growth of the  MSME sector.

Dwivedi stressed that the diamond industry was a very complicated sector and there was a need for tailored solutions for it, though he said that the defaulters were less in this segment.

The panel discussion conducted by Latha Venkatesh, Executive Editor CNBC-TV 18,  which followed, with the participation of  Pandya, Jaykumar, Sekar,  who were joined by  Biju Patnaik, EVP IndusInd Bank and Russell Mehta, Vice Chairman GJEPC,  discussed the various issues in an open and frank manner.  There was a consensus amongst the panellists that there was a need for banks to do their due diligence carefully, understand the eco-system of the  diamond industry and that the diamond trade should come forward to provide information inputs   both, about  the industry and the players within it.

Pic Cap:

(frm left) Kirit Bhansali, Russell Mehta, Praveenshankar Pandya, Hon’ble Shri Sudhir Mungantiwar, Anoop Mehta, Shri Manoj Dwivedi