Rs 130-bn PNB fraud hits expansion plans, jobs at small jewellers

Punjab National Bank
The fallout of the Punjab National Bank fraud has hit small and medium size units in the jewellery sector. For, lines of credit to this segment, comprising their operational capital requirement, have shrunk dramatically.

Earlier, industry sources told Business Standard, banks charged 8-12 per cent interest to small or medium jewellers, with 110-120 per cent collateral. However, after the Nirav Modi scam came into the public eye, they are only disbursing loans to these jewellers with 150-200 per cent collateral.

“Apart from the gold, jewellers also keep their property as mortgage with the banks. With the amount of collateral increasing, finding other property for mortgaging has become a major issue. Small scale jewellers aren’t now able to grow,” Nitin Khandelwal, chairman of the All India Gem and Jewellery Domestic Council (AIGJDC), said.

So far, he said, he had got calls from at least 50 small jewellers across the country who said their store expansion plans had stalled adter these developments. Depending upon scale and nature of operations, these small jewellers need 20-30 per cent as lines of credit from banks.

Of the Rs 4-trillion jewellery sector, small scale jewellers account for an estimated 62 per cent. “It has become a big concern, with employment in this sector also getting affected. The small scale segment employs 60 per cent of the 10 million in the jewellery sector,” said Bachhraj Bamalwa of Nemichand Bamalwa & Sons, a leading entity.

Previously, overall employment in the sector had been growing at seven to eight per cent a year; it is now stagnating. Khandelwal said if the shrinking of credit lines continues, the sector would head for challenging times after three-odd months.
Sources suggest banks are refusing any discussion on this matter, despite several letters being sent to them.
“Government officials have told us that it will take some time to normalise the lines of credit from public sector banks but, beyond four months, it will become unbearable for the sector as a whole," said an official from the AIGJDC. 

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