India’s largest lender SBI is planning to tighten the rules and reframe the credit policy for jewellery sector.
The lender has proposed exposure caps of Rs 100 crore and Rs 250 crore for individual and corporate borrowers, respectively.
Further, the bank has made plans to lend a considerable part in the form of gold loans, instead of the customary cash credit against stocks.
According to the sources, the lender is trying to ensure better scrutiny of the end-use of funds but may leave many borrowers with working capital crunch.
The proposal reveals that collateral (in the form of cash and enforceable immovable property) are most likely to be raised for poorly-rated borrowers and new customers.
SBI’s policy review is inspired by characteristics of the gems and jewellery industry that emphasizes on high dependence on imports, volatility in raw material price, dependence on short-term finance for an upfront payment to suppliers and customer preferences.
Reports suggest that the bank’s financing of jewellery would be available on selective branches.