Tight credit may hit diamond exporters

KOLKATA: Diamond traders say banks’ stance on credit limit is hurting the industry and the resulting liquidity crunch could dent exports.

From April, banks have started cutting the credit limits of diamond exporting firms which have not fully utilised the credit extended in 2017-18, according to some leading diamond exporters, who said the move is now affecting business.

In FY18, India exported gems and jewellery worth Rs 2,10,869.36 crore. However, with banks tightening liquidity, exports in FY19 may decline by 5-10 per cent from a year ago, the exporters said.

Banks are also seeking 100 per cent collateral for small and medium diamond cutting and polishing units that are mostly located in Surat.

“Banks have started tightening liquidity from the beginning of the current financial year and the trade is now feeling the impact of it. Worst is that SMEs are being asked for 100 per cent collateral,” Praveen Shankar Pandya, a leading diamond exporter, told ET.

“If this continues for long, exports will take a hit in the current fiscal because of shortage of liquidity. Exports may decline by 5-10 per cent in FY19.”

Exporters said that since the recent defaults are not due to business failures and that there is favourable growth and robust demand, banks should change their outlook on the sector to “neutral”. They said banks should set up a long-term credit risk investigation team to track, monitor and provide intelligence information about trade members to take informed credit decisions. “Banks should assess the limit in dollar terms to insulate an exporter from exchange fluctuation in line with RBI,” said a leading diamond exporter.

The liquidity crunch comes at a time when the domestic industry is seeing robust demand from the US, which accounts for nearly 50 per cent of India’s diamond exports. “India’s manufacturing business cannot grow without funds. Exports, this fiscal, are expected to drop compared with FY18 or may remain flat,” said Vipul Shah, a diamond exporter.

In the first two months of the current fiscal, gems and jewellery exports were down by 13.51 per cent from the year-ago period. Rough diamond imports too declined, falling by 7.69 per cent in volume to 323.29 lakh carats compared with 350.23 lakh carats during April-May 2017.

While liquidity remains a major headache for the industry, the rising price of rough diamonds is adding to the industry’s woes.

Rough prices have gone up by 3-4 per cent across the board, though polished diamond prices have not gone up in tandem. “Margins of the manufacturing sector are under pressure,” said Shah.