Webinar on Banking Stresses Need for Self-discipline

Mumbai: A distinguished panel comprising representatives of government and the banking sector deliberated on wide range of banking issues related to the challenges being faced by the gem and jewellery sector particularly during the Covid-19 pandemic at a webinar hosted by GJEPC on May 15.

The panel, which had Ms Rupa Dutta, economic advisor, ministry of commerce & industry, Government of India; Mr P.N. Prasad, deputy managing director, SBI & Chairman, Coordinating Committee (CoC); and Mr G.S. Gusain, executive director, Union Bank of India, also discussed the Covid-19 Financial Package released by RBI and addressed associated concerns related to credit & liquidity for industry.

The session was moderated by Sanju Kothari, Convener, banking, insurance & taxation committee, GJEPC.

Each of the panellists made some brief opening remarks. Dutta said that the industry is facing issues of non-availability of credit at competitive rate and additional collateral demanded by bank has made sector more vulnerable. She pointed out that jewellery, though a highly labour-intensive sector, is a non-essential luxury item and demand will return only after the demand for essentials is stabilised.

Some of the specific issues related to the banking sector were also listed. SBI DMD Prasad said the bank has been working through the crisis period and was the first to implement the RBI package and offer a Covid-19 loan. He also said that as Chairman of the COC he had worked to resolve many of the issues facing the trade. He assured all that things would return to normal as Risk capital is being provided by Government, Liquidity being infused by RBI & Transmission is happening through the banking system.

UBI ED Gusain said that the bank has been implementing the Covid-19 scheme to help customers on liquidity, but the problems were not India specific as demand revival in the sector must first happen in the consuming countries like USA & Europe. Banks will have problems, just as businesses will too; but when the two support each other, they can solve any problem. He suggested that there should be transparency in dealing with each other.

Some of the other main points highlighted during the discussion were:

  • Economies worldwide are facing unprecedented challenges and India has announced many relief measures to contain financial stress. Banks are implementing financial package and extending needed relief across businesses.
  • Covid-19 has moved beyond a health issue, and we need to ensure that economic activities providing livelihoods to millions are not impacted for too long. Banks have taken up this challenge and have cooperated with the government to ensure that banking activity in the country has not stopped for a moment. Certain MSMEs have wiped out their equity capital itself, so it is difficult for them to continue to borrow. Therefore, the government is providing them quasi equity capital, which will enable banks to provide risk capital / loan lines to the MSME sector.
  • Covid 19 Loan and other facilities are being extended could be availed for normal business needs like all labour, salaries and contractual job charge payment, vendor payment, other statutory overheads etc. Banks have permitted
  • Realization of exports from 9 to 15 months;
  • Metal gold loan – extension of metal loan written to RBI as borrowers not in a position to repay. Case to case basis SBI has extended loan period from 90 to 180 days;
  • Reduced margin, working capital cycle can be increased.;
  • Simplified documentation
  • Industry is also disciplined by not buying additional stocks.
  • UBI Board has given policy for relaxed policy and higher finance.
  • Issue: Value is very high, but margins are low, therefore if WC elongated then Interest bearing will be difficult and could erode profits.
  • Banks are adopting the Cash Budgeting method/ cashflows, to assess / fund elongated WC Cycle with relaxed margin for PC/PSC to all clients. Reassessment is based on case to case basis as such assessments are subject to supervisory review.
  • As per the accounting standards, bill discounting interest is collected up front by all banks. It is the requirement as per accounting standards, which customer may have to deal with.
  • Interest rates are Linked to MCLR. Revision in ROI, is as per change in MCLR. For Term Loan of I yr, MCLR rate will continue till 1 year. WC will be linked to 1 year MCLR, therefore revision is also at 1 year. In case some credit lines are linked with 90 days /180 days MCLR then revision will be done accordingly
  • The rate of interest applied on extended period of bills already discounted in rupee OR dollar terms will be taken as per original contract at the time of discounting. Any extension is at the same rate under the original contract.
  • There is a need to reassess the credit limits in Dollar terms, especially due to the fluctuation of the rupee. Industry need flexible credit terms such as Dollarization of Credit, Gold Card Scheme, gold (Metal) loans and softer ROI & Charges to survive international competition.
  • SBI being Chairman of CoC, has been working in co-ordination with IBA to bring uniformity in Credit policies for diamonds, jewellery, etc.
  • Demand is going to be difficult as major jewellery consuming nations like USA, Europe are also affected by Covid-19.
  • Permitted time for realisation of export has been increased from 9 months to 15 months. This is applicable all exports up to 31.07.2020;   The flexibility should get extended to entire WC facility.  WC includes Packing Credit (PC), Post shipment credit (PSC) and Gold Metal Loans SBLC/BGs.  If banks are interpreting differently, it can be taken up at IBA level.
  • SBI has written to RBI to liberally extend period of metal gold loan due to the extension of receivables period. There are challenges because exports are not happening, factories are closed, labourers are leaving.
  • Dollarization of facility has been permitted by RBI for exporters. RBI has issued circular of Sept 2013. SBI have taken cognizance of the same and as both legs import and export are in dollars is supporting exporters through in- built ad-hoc facility of 10% of the total WC facility as bank continue to depend on INR balance sheet for WC assessment. However, UBI is extending WC limits in   dollar terms on case to case basis.
  • The Gold card scheme benefits are being extended to eligible borrowers are the guidelines of the scheme.
  • SBI is permitting interchangeability & is part of the assessment that even RBI allows. Based on cash flow statement, such requirement may be supported.
  • Efforts on NIRVIK Scheme for sector, are in progress
  • On MSME revised definition MS Roopa Dutta remarked “wait for further clarification” on the subject which should hopefully come in shortly
  • Miners are not pressing sight-holders to lift stocks, self-discipline has been shown through the suspension on rough diamond imports. We need transparency and open channels of communications to resolve any issues. Banks and industry will all sail together or sink together.
  • There would have to be more innovative ways to do business through virtual fairs, as normal fairs may not happen anytime soon. This situation needs out-of-the-box ideas.
  • Digitisation of documents will become more common because physical handling of documents has deficiencies and will eventually be phased out.
  • A digital platform for handling documents with required safety features & digital signing need to be built in. Digital laws and digital signatures already exist. The existing platforms need to be improvised.
  • IceGate is a secure platform and access to bank portals should be made available on a real-time basis. DGFT has a special digitisation scheme in the pipeline to reduce human intervention and this will bring down any lag in the system.
  • There is need to be more disciplined and preserve liquidity as raw material supply and sale of finished goods is not in our hands. Industry needs to monitor labour situation, migration of labour from processing centres like Surat, etc. There are no shortcuts, stay steady, good days will come.
  • Supply chain management is changing globally. We could see much more localisation; there is opportunity to learn from experience of other countries.
  • End-to-end transparency and accounting help banks and government to monitor the situation better. We should focus on e-commerce standard operating procedures; manufacturing is becoming more structured through Common Facility Centres, etc. The gem and jewellery industry can play a positive role to boost manufacturing, exports, and employment.
  • The industry’s need for working capital is paramount; and banks, especially PSBs have played a stellar role in the industry’s journey of becoming a world leader.
  • It was felt that Private banks must be brought on board to provide credit to the gem and jewellery sector in these unusual times to move ahead.

In summary it was felt that the sector’s credit needs are being taken care, supported by banks. The need to work with greater co-ordination & transparency was emphasised. MyKYC is considered as a good initiative for industry & issue is being monitored by highest authority.

Accountability, transparency & ensuring clean accounts is the key to strengthen ties between various stakeholders. Department of Commerce is taking a lot more initiatives to make this industry strong. Government is always there for the industry.