A severe liquidity crunch has forced the diamond trade offer huge discounts during this festive season. While the discounts ranged from five per cent to even 20 per cent and was eating into their margins, the diamond trade was forced to off-load inventory to pay off its loans.
The liquidity crisis was precipitated by announcement of the closure of Antwerp Diamond Bank (ADB) and the news last week that Standard Chartered Bank had decided to reduce its exposure and planned to recall outstanding loans to the Indian diamond industry. ADB alone had loans of around Rs.1,200 crore to the Indian diamond industry.
Vipul Shah, Chairman, Gem & Jewellery Export Promotion Council (GJEPC) told this correspondent that the situation was “very challenging” for the industry. “The impact particularly due to closure of ADB would be a Rs.600-800 crore hit for the Indian diamond industry and there will be a huge liquidity crunch due to this.”
Small and medium diamantaires were largely dependent on ADB and Standard Chartered Bank for their loan credits and in anticipation of the loan recovery process, the industry has started offering huge discounts to clear inventory. “In some cases, where traders are desperate, the discounts offered could be as high as 25 per cent,” Parag Patel, a trader in Mumbai’s diamond market, Zaveri Bazar said.
Amid the funds crunch and paucity of rough diamonds, the Surat diamond market will reportedly take a three-week Diwali 'vacation'.
The Indian diamond jewellery industry was estimated at around $8 billion. Indian banks have in the past lent Rs.30,000-40,000 crore to the diamond trade. But of late, with very tight financing norms in place, they had reduced exposure owing to lack of transparency in operations of the trade.
“Diamond processing remains healthy with around 80 per cent of the world’s diamond cutting & polishing (C&P) taking place in India,” Ashok Minawala, Director, Danabhai Jewellers and board member of All India Gem & Jewellery Traders’ Federation said.
“But in the past banks have burnt their fingers and now do not wish to lend to the industry."
