ABN Amro reduces diamond exposure

MUMBAI, April 17: ABN Amro Bank, the leading financier of diamond industry, has decided to drastically reduce its lending to the diamond sec...

MUMBAI, April 17: ABN Amro Bank, the leading financier of diamond industry, has decided to drastically reduce its lending to the diamond sector in India as the industry has been facing serious problems due to recession in the export markets and the closure of several diamond export units.

Some other banks like the Corporation Bank have also decided to reduce their exposure to diamonds as their non-performing asset NPA level has been shooting up due to the default by exporters. The total exposure of banks to the sector is estimated to be around Rs 3,000 crore.

ABN Amro8217;s exposure to the diamond sector all over the world is US 2 billion. The foreign bank is also not going ahead with the diamond bourse branch planned at the Bandra Kurla Complex. 8220;We have been given a branch licence by the Reserve Bank of India to open a branch exclusively for the Bharat Diamond Bourse BDB,8221; said an ABN-Amro official, adding, 8220;now we are not going ahead with the diamond branch as nobody knows whether the project willbe completed at all.8221;

ABN Amro, which has completed 76 years of operations in India, has been playing a vital role in encouraging Indian diamond exports. In India, ABN Amro8217;s total exposure to the diamond sector is around Rs 350 crore and the bank claims that its portfolio is not affected by the current crisis facing the diamond sector. 8220;The bank has been deliberately moving out of financing diamond sector due to the crisis. Now it is trying to expand in retail banking by focussing on new customer services,8221; said an ABN Amro official.

Financing the diamond sector carries a high element of risk as in most cases there is no security for the advances. 8220;The financing of diamond sector is not on the basis of security. We know our clients very closely and the financing is based on mutual trust. We do not have any NPA in the diamond sector,8221; said Romesh Sobti, CEO, ABN Amro.

Earlier about 70 per cent of ABN Amro8217;s total advances in India were going to the diamond sector whereas the other corporate sectorreceived only the remaining 30 per cent. Now the ratio is reversed with the diamond sector accounting for only 30 per cent of the total advances and the remaining 70 per cent going to the other corporate sector, bank officials said.

As part of its diversification plans, ABN Amro Bank will also launch a money market mutual fund MMMF having obtained tax exemption approval from Central Board of Direct Taxes.