SBI to make jewellery sector borrowing regulations stricter

By

Isabelle Crossley

Published
Mar 12, 2018

India’s largest lender, the State Bank of India (SBI) has decided to tighten regulations pertaining to jewellery businesses borrowing money in the wake of the Punjab National Bank (PNB) fraud case.

Following the 12,300 crore rupee (approximately 1.9 billion US dollars) fraud reported at the PNB with diamond tycoon Nirav Modi and his uncle Mehul Choksi accused, the SBI has decided to protect itself by tightening its regulations. From now, jewellery businesses borrowing from the bank will have to either give more collateral to back existing loans or reduce the size of their loans by half in a specified time period.

Loans had previously been approved by the SBI to jewellery businesses with only ten or 15 percent collateral which, being a gamble for the bank, is now being corrected to between 40 and 50 percent following what happened at the PNB. The decision, made by the SBI’s board of directors, is designed to make sure that what happened at the PNB does not happen again, in case the issue is endemic in the jewellery sector.

“In principle, we review the underwriting system whenever delinquency comes into question,” said Sunil Srivastava, Deputy Managing Director of the SBI in a statement. “It's a practice to tell borrowers to infuse more equity in the business or increase the collateral to back the loan, whenever there is weakness.”

It is expected that other banks will follow the SBI’s example and clamp down on lending money to the jewellery sector in India. Despite the Gem and Jewellery Export Promotion Council (GJEPC) assuring that Nirav Modi and Mehul Choksi’s behaviour is the exception and not the norm for the fine jewellery industry, it is unavoidable that the sector comes under far greater scrutiny in the coming months as the PNB fraud is one of the greatest in India’s history.