Diamond Financing

Winsome Diamonds and Jewellery Ltd, a leading manufacturer and exporter of gold and platinum jewelers with embedded diamonds in India.  Company is considered to be a defaulter of Rs.6200 crore till today. This is just one example of defaults in diamond jewellery sector. Diamond financing is nothing but providing financial support to the players in the diamond market.

Indian banks till today hold NPAs of about Rs.1.79lakh crore. State Bank of India, leading lender for diamond financing holds advances of Rs.11000 crore in domestic market and Rs.3290 crore in international market. State bank of India agonize from 6% of NPAs in both domestic and international market for this particular sector. Antwerp Diamond bank, the only bank that provide financial support to Indian Diamond players hold $20 million as NPAs whereas its overall advances to Indian diamond sector is $100 million.

Major problem that banks face in lending diamond sector is that since Diamond and jewellery are mostly family owned businesses so corporatization and transparency can never be expected. Banks feel difficult to supervise the activities of the players. In the case of winsome diamonds, banks were generous enough to restructure the loans. Even then banks feel difficult to recover the money from the borrowers.

According to the survey taken by RBI, lending to diamond sector was growing in a pace of 17% last year which has decelerated by 4% recently. In general, banks accept 20 – 30% of loan amount as collateral. Today banks take 25-30% as collateral from large players such as Rio Tinto and De beers, 100 -120% from small players.

Even though banks look diamond financing as a dangerous sector, IndusInd bank has recently decided to lend Rs.4500 crore to this sector. IndusInd’s recent acquisition of Royal bank of Scotland’s diamond financing business (RBS) and partnership with ABN Amro has enhanced confidence towards diamond financing. Indus Ind expects ABN Amro to provide with client’s details which would help them to neglect week players in the marker and improve their portfolio with efficient loan values.

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