SBI Imposes Harsher Restrictions on Borrowers from Diamond Industry

The State Bank of India (SBI) has reportedly imposed funding restrictions on borrowers for exports to countries other than the USA and Europe, capped exposure at Rs. 1,000 crore per borrower, and set stiff credit rating condition on diamond houses for additional finance, says a news report.

As per the news report, in its credit policy for diamond houses, finalised in 2018-end, the bank has stipulated that borrowers would have to give an undertaking that rough or cut and polished stones are not procured from associate concerns or related parties as a condition for fund-based working capital finance by way of pre-shipment or packing credit in foreign currency.

Also, all existing borrowers with outstanding of Rs. 50 crore or more would have to convert partnership firms into corporates by December 2019 - a move that would increase their tax liability. Diamond houses that are unable to transform into corporates would have to bring in additional collateral and pay half a percentage point higher interest on loans, adds the news report.

As mentioned in the news report, the latest rules by SBI says that the advance payments for procurement of rough diamonds will be permitted to only mining companies as per the list approved by the RBI and Gems & Jewellery Export Promotion Council.

SBI’s policy is likely to be followed by some state-owned banks in the wake of frauds which have come to light in the last few years. With new norms coming into practice, the industry players have to restructure their entities, change business associates and spend more.