The second and third panel discussion at The Gem & Jewellery Export Promotion Council’s (GJEPC’s) Banking Summit 2019 -- “Propelling Exports by Innovation” and “Repositioning Business & Compliance” – discussed various aspects of the way forward.

The former panel included P N Prasad, Deputy Managing Director SBI and Chairman of the Coordinating Committee (CoC) set up as a result of the last Banking Summit; Biju Patnaik, Executive Vice President IndusInd Bank; Russell Mehta, Advisor to Chairman, GJEPC; Sanju Kothari, Convener, BITC, GJEPC; and Evgeny Agureev, Director of the United Selling Organization of ALROSA. The discussion was moderated by Latha Venkatesh, Executive Editor, CNBC-TV 18.

Making an opening statement, Venkatesh said that the Indian economy was fundamentally doing well, and that it was only in the last few quarters in which it had encountered challenges and threw open the discussion seeking what the panel members thought the particular problems were and what could be done.

Mehta opined that it was not only the gems and jewellery industry which was facing a credit crunch but other industries were as well. However, after the Nirav Modi-Mehul Choksi imbroglio there has been an erosion in the confidence of the financial institutions and it impacted the g&j industry more particularly.  He said that banks will have to identify the right promoters to do business with. And the entrepreneurs of the sector would also have to ensure that the confidence is built back and trust re-established. The largest problem he said was with banks outside India, which had either pulled out or reduced their exposure to the industry; the banks within India were still more active and supportive of the industry. 

He also raised the issue of valuation of a company’s stock, which he felt would remain a problem as diamond is a natural product and dependent on individual appraisal. He felt that there should be instruments of securitisation like they have abroad, in order to counter some of the problems on financing.

Venkatesh raised the question of whether the bankers in India were indulging in was “lazy banking or scared banking”; which was at the root of the problem of liquidity faced by the industry.

Prasad countered by saying that it was not a question of “scared banking” but all institutions were worried about NPAs. He pointed out that the industry in India had also grown as a result of the financing received. He felt that due care should be taken both on security and margins and that the industry should strengthen policies and processes in order to re-establish the trust which was clearly in deficit at the moment.

Kothari remarked that the SBI had done a great job of lending to the g&j sector and all nationalised banks have stood by the industry. However, he pointed out that when the industry had a turnover of US$ 20 billion, the bank finance to the industry amounted to US$ 6 billion; now the industry has exports worth US$ 40 billion and bank finance to the tune of only US$ 5.5 billion. He stressed that ECGC needs to step up its involvement which would in turn help the industry – and more particularly the MSME segment – to procure more finance. He also spoke about the MyKYCBank initiative of the GJEPC which already had 3,300 members and which they were working to strengthen

Patnaik said that 30% of IndusInd’s clients are MSMEs, and that the bank had a conscious policy to that effect. He pointed out that companies, like all entities have a life cycle and a growth chart. While larger companies were already well ahead in their growth curve, the MSMEs, in that sense, were only at their beginning and therefore had a longer life span of development.

Agureev summed up the various challenges facing the midstream and said that there were two possible solutions: for miners to decrease prices of rough and to decrease rough volumes. He said that ALROSA had come forward to support the industry by allowing their clients flexibility in their purchases; maintaining a reasonable mining output; and providing the reassurance of a provenance for their diamonds. 

The panel discussed the difficulty of valuation of diamonds and Prasad said, to overcome this, hiring the services of experts was one solution put forth by the CoC. “It is a work in progress, and we are on it,” he said.

Patnaik said inventory valuation was critical as profit and loss was also based on the value of the inventory. Also, that the requirement of working capital had increased and this should be studied on a case by case basis.

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The third and final panel discussion of the day -- “Repositioning Business & Compliance” -- included Ms. Rupa Dutta, Economic Advisor to the Ministry of Commerce & Industry (MoC&I); V.G. Kannan Chief Executive, Indian Banks’ Association (IBA); Suman Chowdhury, President – Ratings, Acuite Ratings & Research; Colin Shah, Vice Chairman, GJEPC;  Dr. Suresh Surana, RSM Astute Consulting Pvt. Ltd. It was moderated by Manisha Gupta, Editor – Commodities and Currencies, CNBC-TV18.

Ms. Dutta summed up the issues confronting the g&j industry and once again raised the matter of inventory valuation which was a challenge.

Dr. Surana opined that the greatest problem had arisen with regard to receivables where this industry was concerned; and it was difficult for the financial institutions to ascertain the credit worthiness of their clients’ customers. 

Chowdhury raised the difficulties inherent in the ratings business. He said the size of a company is taken into account as that is often reflective of how the balance sheet is. Clarity on business model and a transparent balance sheet are of the utmost importance he stressed. It was also important to understand the sustainability and quality of the business, he said, as was due diligence.

Kannan pointed out that credit growth was up only 8%. He felt that companies should keep costs under control and that the demand and supply should be in balance. He said the confidence of the banks would be re-established if there was not a single default.

Shah agreed that there is a trade deficit where the industry is considered and that “we should be the change we want to see”. He said the GJEPC was intent on taking this message to the industry and taking various steps to see that there was information put out and transparency in processes so that the banks could feel more confident. He emphasised the   setting up of the MyKYCBank, and its growing membership and wide acceptance across centres like Dubai and Antwerp.

But, he said, as an industry they were looking at more support from the Government and the financial institutions to meet the challenge of reduced credit flow.

Ms. Dutta assured him that export credit and export issues are being given lots of importance by the Ministry of C&I and even by the Minister himself, as well as by customs and other agencies related to the g&j export sector. She once again stressed that it was the responsibility of the industry however, to come forward and re-establish the trust and confidence in the sector. 

The business sessions of the day ended with a vote of thanks from Colin Shah, Vice Chairman of the GJEPC.

Later in the evening, the GJEPC had organised a motivational talk by Gaur Gopal Das; and a music recital by by Padma Vibhushan Pt. Shivkumar Sharma and Rahul Sharma, which was  followed by dinner.