Union Commerce and Industry Minister Suresh Prabhu on Friday urged banks to step up lending to legitimate gem and jewellery players who are bonafide, transparent and above board, provided there’s proper risk-mitigation mechanism.
The gems and jewellery sector is facing funding issues after the Reserve Bank of India in March banned the issuance of letters of undertaking (LoUs) and letters of comfort (LoCs), used extensively for trade finance, following the Rs 13,000-crore PNB scam involving diamantaire Nirav Modi.
There is a need to have a banking system which understands the gem and jewellery industry and supports its growth without taking any undue risk, he said. “Gold, gems and jewellery and diamond give huge employment opportunities in India. We will like to have a banking system that understands the business properly. Banks should not take any undue risk, which are not understandable and quantifiable,” Prabhu said at an event organised by the Gems and Jewellery Export Promotion Council (GJEPC) here. Prabhu urged banks to have proper risk-mitigation mechanisms in place to avoid any potential frauds.
“With 3 million new jobs on the anvil, the banks should not hesitate to fund the industry efforts which are bonafide, transparent and above board. Also considering the fact that the sector is on a growth spiral and in view of the potential the industry has in future, the banks should further step up lending efforts to legitimate players fuelling the trade.”
Prabhu said the government will not support any business activity which is not ethical and bankable. “We would like banks to fund everything which is genuine, bankable and has capability to scale up,” he said.
On the PNB fraud, commerce secretary Rita Teaotia said there is need for an introspection by banks and the gem and jewellery sector. “The banking sector must also recognise that the reasons for this failure was actually failure of our own banking system,” Teaotia said. “There is no cosy relationships that anyone of us can afford. It has to be business and we have to follow prudent norms.”
Meanwhile, in a white paper submitted by the GJEPC to the government, the council has demanded a turnover coverage from the Export Credit Guarantee Corporation of India (ECGC). The cover from ECGC was available till 2014, but was later sealed. The council has asked the government to reinstate exposure under whole turnover post shipment (WTP) for banks.
Teotia said the government will not give any instruction to ECGC and will like the institution to take a call based on the merit. “We expect them (ECGC) to operate in a professional manner to go by merits and then based on their ability and then they should support them. ECGC need to take the risk on the sector, but it will not be at the direction of the government,” she said. The Commerce Secretary also asked banks to focus on the SME sector which are facing funding issues. “We are failing a very significant sector if we neglect the SMEs,” she said.