P N Prasad, Deputy MD SBI: Ban on import of roughs will enhance liquidity, ensuring good demand and supply equation

How do commercial banks perceive the decision taken by the diamond sector to ban imports of roughs?
Every industry runs on demand and supply. Diamond industry is no exception. As a result of the global lockdown, demand for polished diamond is low. Manufacturing units may also be holding more than adequate stock to meet the current demand. Hence this self discipline and  decision to ban rough diamonds is a good decision – thereby businesses can save fund and ensure better liquidity.

Will this move affect liquidity of diamond business significantly?
Since demand will be slow, it is likely that the units may book lower profits as well. This can affect their loan repayment capacity. So by imposing this self-ban, they have taken an admirable step which will surely improve  the cash balances of many businesses in this fraternity. Secondly, from the banking point of view, we are generally concerned with the liquidity of businesses and their ability to meet  liabilities without delay.

"Diamond industry is no exception. As a result of the global lockdown, demand for polished diamond is low. Manufacturing units may also be holding more than adequate stock to meet the current demand. Hence this self discipline and  decision to ban rough diamonds is a good decision – thereby businesses can save fund and ensure better liquidity."

What concessions are given for repayment of loans to the industry?
RBI has permitted certain relaxations in this regard which is being extended to the units . Apart from this, most  of the commercial banks have extended  Covid emergency loans, so as to enable the businesses to meet their overheads and other fixed costs with liberal terms including adequate time to repay these loans. We have not so far received any major demand from the industry except for the concession in repayment of loan and roll over of metal gold loans. There has been no exceptional demand from the gems and jewellery industry.

According to you what is the major concern that affects the gems and jewellery industry at present?
The major concern that I hear is coming from diamond manufacturing units in Surat, where many migrant labourers have gone back to their villages. Many are still going back, whether they will come back in time, when markets open – is an area of concern. Their return is important to ensure supply of finished products.

"SBI has around Rs 20,000 crore exposure to the gems and jewellery sector. Exposure to the jewellery sector is spread across the country and exposure to diamond industry is mainly in Mumbai. We also have some overseas exposure in Antwerp, Dubai, Hong Kong etc."

What is the current exposure of SBI in terms of loans and advances to the gems and jewellery industry?
SBI has around Rs 20,000 crore exposure to the gems and jewellery sector. Exposure to the jewellery sector is spread across the country and exposure to diamond industry is mainly in Mumbai. We also have some overseas exposure in Antwerp, Dubai, Hong Kong etc.

Will such measures of imposing ban on imports of roughs affect creditworthiness of businesses?
Any measures which bring confidence to the sector is welcome. At the same time, while giving advances, we have to look at individual balance sheets of companies, their business practices, corporate governance etc.  Several  factors are examined during due diligence process. Just because the sector is observing some discipline in regulating their liquidity, does not mean their creditworthiness will go up. Creditworthiness is dependent upon several factors.

Our underwriting standards will continue to be robust. We will look at underlying risk, mitigations available, collateral security, credit guarantee cover, credibility, etc before taking credit decisions.

Earlier, you had mentioned about metal gold loan, can you explain its roll over in detail?
Metal Gold loan is a general product. Jewellers can avail gold at international pricing, and during the working capital cycle of around 90 to 180 days they have to repay the loan. It is a cost effective product and self-liquidating in nature. Many banks provide this loan to the G & J sector. Due to the lockdown, some companies have asked us to roll over this loan, based upon merits of the case, we are rolling it over.

"While giving advances, we have to look at individual balance sheets of companies, their business practices, corporate governance etc.  Several  factors are examined during due diligence process. Just because the sector is observing some discipline in regulating their liquidity, does not mean their creditworthiness will go up. Creditworthiness is dependent upon several factors."