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Between January and March, outstanding bank loans to jewellery sector saw a 5.7 percent rise as per data by the Reserve Bank of India, as per a report in The Economic Times.
These numbers suggest that right after the scam came to light, other jewellers used up their existing credit limits to escape the methods that banks employed for self-protection.
The amount of loans disbursed grew from Rs 68,800 crore on January 19 to Rs 72,700 crore at the end of March, which also contradicts reports that suggested a cut in credit limits by lenders after the PNB fraud came to the front.
The Nirav Modi-PNB scam is the biggest loan fraud in the history of Indian banking and it questioned the banks’ abilities to detect such frauds and their underwriting skills.
Surendra Mehta, secretary at India & Jewelers Association, told the paper that after the scam, there was unease amongst gems and jewellery traders about banks cutting the limits. “The traders immediately availed the sanctioned credit limit, both working capital and gold loan, before banks could squeeze their exposure to the sector.”
Mehta added that some exporters and traders have repaid the interest from the loans availed to prevent their account from becoming sticky.
Another reason for a growth in loan amounts could be banks putting up a front to show higher credit growth before the end of any fiscal.
CARE Ratings chief economist Madan Sabnavis said: “It is also possible that the banks see the impropriety related to some specific companies and do not paint the entire industry with the same brush.”
Many lenders, including State Bank of India, have decided to steer clear of jewellers and cut exposure to them after the fraud, while the traders have asked for more time, sources told the paper.
India’s gems and jewellery exports are valued at USD 43 billion and make for 7 percent of the country’s GDP. India exports 93 percent of the world’s polished diamonds, for USD 23 billion.
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