Liquidity crisis for gems, jewellery sector as Nirav Modi case scares banks

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Latest News: The Rs 5-trillion gems and jewellery industry in India is facing a huge liquidity crisis due to the reluctance of lenders to finance working capital loans over fears, which have been sparked by a couple of precedents set in the past few months, of default.

Industry sources said that banks have blacklisted the entire gems and jewellery sector and are not funding working capital loans, especially to small and medium enterprises (SMEs), due to insufficient collateral backup for recovery in the case of a default. Banks, according to industry sources, are seeking 200 per cent collateral for working capital loans, with 100 per cent in the form of actual mortgage and another similar amount of stock under their custody.

The non-availability of funds has hit small jewellers' operational efficiency, including their sales and expansion plans. Further, a number of small jewellers are on the verge of closure due to the scarcity of capital needed to support their business.

"The gems and jewellery sector has the least exposure of bad loans and non-performing assets to banks. Yet, the sector is being victimised and blacklisted for the misdeeds of one or two entities, resulting in a huge liquidity crisis for the entire sector. If this issue is not addressed at the earliest, then a number of jewellers would curtail their businesses, resulting in huge unemployment," said Nitin Khandelwal, the chairman of the All India Gems & Jewellery Domestic Council.

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