Mumbai: State Bank of India, India’s largest lender, is tightening the noose around borrowers in the gems and jewellery sector by telling them to either bring in more collaterals to back the existing borrowings or reduce the size of it in a time-bound manner, reports The Economic Times.
The decision was driven by the board which directed the management to plug the gaps in risk mitigation system, especially for borrowers in the jewellery sector which has been in the eye of the storm after the Nirav Modi-led Rs. 12,300 crore fraud was detected in Punjab National Bank.
SBI has reviewed all loans given to jewellers in the wake of the Nirav Modi scam to find out whether adequate safeguards were taken while giving the loan. In case of divergence, the bank has written to its borrowers to raise the collateral level to at least 40-50% of the loan value or cut the size of the borrowing by half.
Earlier, loans were given on easier terms with 10-15% collateral which is now being corrected.
“In principle, we review the underwriting system whenever delinquency comes into question,” said SBI dputy managing director Mr. Sunil Srivastava. “It’s a practice to tell borrowers to infuse more equity in the business or increase the collateral to back the loan, whenever there is weakness.”
SBI, it is learnt, has also demanded a definite plan from these borrowers on how they are going to implement this.
The move by India’s banking bellwether is likely to be followed by other lenders, which in turn, may dry up funds flow to the gems and jewellery industry, which is a large foreign exchange earner and one of the biggest job creators in Asia’s third-largest economy, where unemployment always remains a core issue for the government.
SBI Chairman Mr. Rajnish Kumar had said in February that the bank has less than Rs. 13,000 crore exposure to the gems and jewellery sector which is less than 1% of its domestic loan book of Rs. 16 lakh crore.
“We have not increased our exposure in the sector for the past three years. But being the largest bank, we can’t get out of this space which contributes to dollar inflows and job creation,” SBI’s Srivastava told ET.
India is one of the largest exporters of gems and jewellery. Net exports of gems and jewellery rose to $35.59 billion in FY17 from $15.66 billion in FY05, showing a 7% CAGR.
