Following the impact of the PNB scam on public sector banks, the country’s largest lender State Bank of India (SBI) is tightening its borrowing norms for companies in the jewellery and gems sector. As per the new borrowing norms, the lender is now asking companies to bring in more collateral for the loans or reduce the size of the existing loans in a timely manner.
A few weeks ago, the Punjab National Bank was in the centre of a controversy after the Rs.12,300 crore fraud that became a nation-wide sensation. As a result of this scandal, SBI started reviewing the loans provided to jewellery and gems companies to check whether the risk mitigation system is properly implemented.
The decision to tighten the norms was made by SBI’s board, and the management was directed to impose stricter norms in the loan process. In the earlier days, the bank provided loans to companies with just 10% to 15% worth of collateral for the borrowed money. Now, this has been increased to around 40% to 50%.
The bank has written to its borrowers to adhere to the new norms. It has also asked them to revert back on how they are planning to incorporate this. With the stricter norms, companies in this sector could also face troubles when it comes to securing new loans in the future.
According to SBI’s chairman Rajnish Kumar, the bank has a loan book of Rs.16 lakh crore. Out of which, only Rs.13,000 crore is in the jewellery and gems segment. This means that SBI has less than 1% exposure to this sector.
SBI also said that it has not increased the exposure to this sector in the recent years. Moreover, this is a segment that the bank cannot ignore as there is a huge potential for dollar inflow in this business. It is estimated that the gems and jewellery sector contributes to nearly 6 to 7% of the country’s GDP. Moreover, India is one of the largest exporters of gems and jewellery in the world.