The Reserve Bank of India (RBI) had reinstated gold metal loans for jewelry manufacturers through a circular issued last May. However, the banks are still seen hesitant to offer loans to jewelers. Many large banks are found refraining themselves from lending huge sums of money to jewelry manufacturers. Consequently, gold jewelers in India are faced with severe contraction in operating margins on account of repayment against high cost loans.
According to Bachhraj Bamalwa, Former Chairman, All India Gems and Jewellery Trade Federation (GJF), banks are showing severe resistance in sanctioning of gold metal loans. Banks that offer loans often delay the release of funds. The loans which were earlier released in 10 to 15 working days are now seen taking three to four months. Also, unlike before, the banks are seen not interested to automatically renew these gold loans upon expiry of 180 days.
Earlier, certain jewelers who managed to receive gold metal loan misused this money for some other purposes. The banks had failed to conduct thorough background checks on the clients before releasing the loan money. RBI in its circular issued in May 2014 had directed the banks in the country to carry out independent credit appraisal of the borrower and monitor the end use of the released money. However, the high risk factor is seen preventing the banks from lending to gems and jewelry industry in the country.
The gold metal loan offered by Indian banks carries an interest of 4 to 6%, whereas in international market, it is available for interest rates as low as 0.5%. Apart from avoiding delays in releasing the funds, the Federation also called for lowering of interest rates to 3% so that jewelry exporters in the country could compete with international jewelers on a more level-playing field.