No diamonds, banks only want real estate guarantees from jewelers

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Times are getting tougher for jewelers as a result of the Punjab National Bank fraud.

Following the Nirav-Choksi episode, bankers are now asking jewelers for guarantees in the form of real estate assets up to 150%, a request that some of the players in the sector are struggling to meet.

This comes as several large banks are becoming cautious in granting loans.

“Previously the warranty (requirement) was around 85% for most jewelers. In the early days of the scam it was increased to 110%. And now we are being asked to provide guarantees up to 150%. Jewelers who have already pledged their real estate would find it difficult to provide additional collateral, “said Ravi Karel, Secretary of State for the Bullion Gem & Jewelery Association, on the sidelines of a Bengal road show. International Jewelery Show.

While banks previously accepted part of the collateral in the form of stocks, after the discovery of fake and synthetic gold and diamond jewelry, even stocks are not taken into account, he said.

“And now, with the revelation of yet another scam in which Chennai jeweler Kanishk Gold was accused of defrauding banks of nearly Rs 1,000 crore, it would complicate matters even further for jewelers,” he said. he declared.

The surge in demand for collateral comes after several banks are reluctant to extend credit to the gemstone and jewelry industry.

Nitin Khandelwal, chairman of the All India Gems & Jewelery Trade Federation, recently alleged that several banks had stopped supporting the industry.

A Mumbai-based bank, when contacted, told DNA Money that the bank has taken a cautious approach to lending while refusing to accept the claim that it has stopped funding the industry altogether. .

“For the banks, it is now a strategy of ‘offense is the best defense’. While some corrupt bankers, hand in hand with some jewelers, have committed the fraud, these bankers, in order to clear them of responsibility, make life difficult for small players by asking for more collateral or trying to reduce their exposure, ”said Pankaj Parekh, regional president of the India Bullion and Jewelers Association.

The Reserve Bank of India’s ban on the letter of commitment, however, would only impact a handful of industry players, said Parekh, a senior industry player.

“LoUs were mainly used by those who imported finished jewelry. Billions were imported primarily through pipeline agencies, while diamond imports were by cash or security only. Only a few large jewelers imported finished jewelry at a high mark-up cost. be sold only to a few high net worth clients, ”he said.

Players like Choksi, however, tried to mess with the system by importing finished jewelry to LoU and then exporting it for cash, received via the hawala route, which bypassed the banking system, a- he declared.

THE GLOW fades

  • While banks previously accepted part of the collateral in the form of stocks, after the discovery of gold and faux and synthetic diamond jewelry, even stocks are not taken into account.
  • In the early days of the scam, the warranty was increased to 110%. And now jewelers are being asked to provide guarantees up to 150%


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