Diamond & Jewellery Financing 2019 - Redefining Business Strategy July 31, 2019 Confidential | For internal circulation only - GJEPC
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Diamond & Jewellery
Financing 2019
Redefining Business Strategy
July 31, 2019
Confidential | For internal circulation only
Content
1.0 1.1 1.2 1.3 1.4
Trade Highlights INDUSTRY INDUSTRY GJEPC GENERAL TRADE
And Vision >> SCENARIO PERFORMANCE INITIATIVES INITIATIVES
2.0 2.1 2.2 2.3 2.4 2.5 2.6
Achievements of SYNOPSIS FORMATION OF DOLLARIZATION MY KYC BANK GOLD & METAL INVENTORY
White Paper 2018 >> THE COC OF LIMITS LOANS VALUATION
3.0 3.1 3.2 3.3
Challenges & BANK CREDIT INSURANCE MSME
Suggestions >>
4.0 4.1 4.2 4.3 4.4
Way Forward >> TRADE BANKS GOVERNMENT GOVERNMENT
BODIES
Confidential | For internal circulation only
Trade Highlights
And
Trade Vision 2022
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Industry Scenario
India’s rank in G&J trade
■ A USD 40 billion export industry, and
USD 35 billion domestic industry Trade indicators Value/share
Total World Exports ~USD 625 billion
■ Employs workforce of 5 mn across
India’s Exports ~USD 40 billion
India and is expected to generate
India’s Share 6.4%
additional 2 mn jobs by 2022
India’s Ranking 5th
Other Major Exporters • Switzerland (13.1%)
■ Contributes 7% to the India’s GDP
• HK (11%)
• USA (10.3%)
■ Contributed 12% to India’s total • UK (7.6%)
merchandise exports in FY 19, down • India (6.4%)
from 14% in FY 2018 • UAE (4.7%)
■ G&J exports doubled from USD 21 bn • China (3.2%)
in FY 2008 to USD 40 bn in FY 2019 • Belgium (3%)
Source : UN Comtrade 2018
■ Not one diamond mine, yet the Trade vision - 2022
world’s largest supplier
■ Indian being a low cost destination, India carries huge export potential to escalate it’s exports
there is a vast potential in imitation to USD 75 billion and increase it’s share in world exports
and coloured stone studded jewellery to 15%, to become the largest exporter globally.
Confidential | For internal circulation only
Industry Performance
Gem and Jewellery sector from FY 2015 to FY 2019
Exports FY2015 FY2016 FY2017 FY2018 FY2019 INDIA’S EXPORTS OF G&J: FY15-FY19
USD Million
C&P Diamonds Rough Diamonds
C&P Diamonds 23,160 20,668 22,784 23,733 23,818
Rough Diamonds 1,419 1,170 1,500 1,427 1,354
Gold Medallions 12,740 13,816 14,131 11,644 12,941 Gold Medallions Silver Jewellery
and Jewellery and Jewellery
Silver Jewellery 2,052 2,960 4,021 3,386 841 Coloured
Coloured 657 673 763 782 769 Gemstones
30,000
Gemstones
TOTAL 40,028 39,287 43,199 40,972 39,723
25,000
Source : GJEPC Database
Contribution by Gem & Jewellery sector 20,000
USD MILLION
Contribution by Gem & US$ in INR in billion 15,000
Jewellery sector billion
10,000
India's GDP 2,600 1,82,000
Total annual exports in FY19 330 23,100
5,000
Industry turnover 40 2,800
% contribution to Export 12.12% 12.12%
-
Gross bank credit 1,239 86,749 FY2015 FY2016 FY2017 FY2018 FY2019
Bank credit to G&J 10 720
% Contribution to bank credit 0.83% 0.83%
Confidential | For internal circulation only
GJEPC Initiatives
Industry, Innovation and Infrastructure GJEPC FY 2018 - 2019
Initiatives and activities at a glance
■ CFC – 4 commenced (Visnagar, Palanpur,
12 International Exhibition – India Pavilion
Amreli, Junagadh) and 9 in progress
6 Buy seller meets in India
■ Cluster mapping survey project - In
process, report expected by August 2019
3 Buyer seller meets abroad
■ Various social projects - Swasthya Ratna,
2 India International Jewellery Show
Swasthya Kosh , Parichay Card etc.
70 Seminars and workshops
■ Jewellery park in Mumbai and gem bourse
in Jaipur – In Process
The Swasthya Ratna launched in 2015
provides subsidized health insurance and has
State-of-the-art machinery and infrastructure covered over 4.70 lakh lives and disbursed
over 100 cr till May 2019.
JEWELLERY PARK
INR 50 crores sanctioned from the MoC&I under
the 12th five-year
The Swasthya Kosh & Parichay card launched
2,400 units of all categories including large, in 2019, provides social security to the
medium and small players industry work force with over 1 lakh
enrolments till date
Maximum support from both State and Central
government
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General Trade Initiatives
Our approach – initiating positive change
■ Quarterly report on key data points, observations and major
Data Analysis
developments in the industry is shared with stakeholders for
discussion and suggestions.
Promote ease of ■ MyKYCBank was introduced to promote better compliance and
doing business and transparency in doing business.
better compliance ■ Several measures have been taken to promote ease of doing
business and reduce paperwork.
Seminars and
■ Quarterly / monthly seminars are conducted to give all
workshops stakeholders an insight, and help solve trade related problems
such as banking, insurance and taxation.
Feedback ■ The GJEPC has solved several trade related issues which was
mechanism received on the email address ho@gjepcindia.com that was set-up
as an initiative of the white paper.
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White Paper 2018
Synopsis and Achievements
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Synopsis of the White Paper – 2018
Issues Achievements
1 Cost of credit, collateral security, gold Formation of the CoC to
Credit limits card scheme, dollarization of limits etc. address trade related concerns
2 Introduction of the MyKYCBank to Implementation and
Compliance
address identity and compliance risk registration of 3300+ members
White Paper
Highlights
Formation of a GJEPC
Valuation Addressing complexity and accuracy in
3 recommended and customs
of stock stock valuation
approved stock valuers panel
Non-availability of adequate insurance Working on an insurance policy
Insurance cover, increase in cost of premiums for MSMEs (Expected soon)
4
General Resolved several GST related
Ease of doing business, tax related
Trade issues and formation of an
matters, arbitration redressal etc.
5 Welfare arbitration committee.
With efforts of GJEPC, the GST dept. clarified that, goods sent overseas on approval,
will NOT constitute a SUPPLY and can be taken out on a delivery challan with a 6 month
return condition. However, ITC can be claimed only once goods are sold / deemed sold.
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Formation of the Coordination Committee
With active support from the Dept. of Financial Services and Ministry of C&I, the CoC headed by Mr. P.N. Prasad, DMD,
SBI was formed in 2018 to address trade related issues pertaining to finance, compliance and ease of doing business.
Composition of the CoC Achievements of the CoC
Policy Through the CoC and with support from the IBA
IBA Guidelines and SBI, guidelines for the diamond and
Reserve
Senior Bankers
SBI, UBI, Bank of jewelry policy was laid down.
Indusind, BoB India
Gold Card RBI issued a fresh circular for facilitating gold
Scheme card scheme benefits to eligible exporters.
Dept. of Dollarization As per the RBI and IBA circular, to insulate an
ECGC Members Financial of credit exporter from currency fluctuation, SBI has
Services limits implemented dollarization as a “10% adhoc
limit” over the regular working capital limit, to
partly address this issue.
My KYC Bank With support from the IBA, MyKYCBank was
Ministry of successfully implemented and accepted. The
Commerce GJEPC
GJEPC is now working on making it a global
and Industry initiative and compulsory for availing finance.
Confidential | For internal circulation onlyDollarization of Credit Limits
Key Issue As per RBI circular RBI/2013-14/291 dated September 25, 2013, RBI Master Circular 2015 &
subsequent IBA circular no. 2217 dated March 3, 2016, banks have to re-allocate limit towards
export credit in foreign currency which still remains to be implemented at operational level.
Current scenario
01 Exports have grown from USD 20bn to USD 40bn in 10 years
02 Depreciation of the INR against USD from INR 40 to INR 70
No assessment of export finance in foreign currency as per
03
RBI guidelines
Increase in rate of interest and cost of borrowings, making
04
MSMEs uncompetitive USD / INR Movement
As per the RBI and IBA circular, to insulate an exporter
from currency fluctuation, all banks are requested to
assess credit limits in foreign currency.
With efforts of the CoC, SBI has implemented a “10%
adhoc limit” over the regular working capital limit, to
partly address this issue.
Confidential | For internal circulation onlyMyKYCBank
Implementation and Acceptance
How industry banks can use this? Registered profiles
• Identify companies who are in the industry
through strict KYC norm, therefore a lower
risk.
• Increased counter party transparency due
to international visibility. Banks can then In 2018 - 1500 Till date – 3300+
finance the right people in the industry
• Work with traditional dispute resolution
mechanisms. Industry bodies enrolled with MyKYCBank
• Easier to do due diligence on counter party GJEPC, India
due to availability of their KYC Bharat Diamond Bourse, India
• Easier to meet bank’s own compliance Dubai Diamond Exchange, UAE (DMCC)
requirement. Antwerp World Diamond Centre, Belgium
2 trainings of 6 to 8 sessions each were held during the
MyKYCBank is designed to help industry
year. The attendee banks were Bank of India, IDBI, OBC,
banks to mitigate identity risk.
PNB, Saraswat, Karnataka Bank and few more.
Confidential | For internal circulation onlyGold and Metal Loans
Gold Metal Loans
Current As per the RBI guidelines, nominated banks and other agencies may extend Gold (Metal) Loans
status to jewellery manufacturers for manufacturing of gold jewellery and not for resale of Gold.
Current request Availability of
To increase the number of nominated Gold Metal
01 agencies for supply of gold Loans
Support genuine exporters, as increase in Banks
02 gold import duty will lead to blockage of refraining Existing High import
working capital from issuing Issues duty on gold
SBLC/BGs
Provide SBLC/BG facilities for purchase of Only few
03 other precious metals such as silver, nominated
platinum etc. agencies
Measures taken by GJEPC
The Finance Ministry clarified that, DTA units (local suppliers) are eligible to claim duty drawback, when
supplying gold / silver to a SEZ units, giving a big relief to SEZ units.
In the recent budget, though the import duty on gold has been increased to 12.50% from 10%, the GJEPC has been
actively representing the trade concerns to the Dept. of Financial Services for reduction of import duty on Gold.
Confidential | For internal circulation onlyValuation of Inventory
Measures taken by GJEPC
Standard Since commercial and technical valuation of inventory differs, the GJEPC has laid down
operating recommended procedures for stock valuation approved by customs, to be followed by the panel
procedure of valuers at PCCC, BDB, BKC.
Management The GJEPC is working on a Risk Management System by appointing an approved panel of valuers
System to address valuation related challenges.
Panel of The GJEPC is working with the customs department on a panel of additional stock valuers and
Stock Valuers honorary trade experts from top 50 exporters.
New opportunities Accuracy
Challenges Addressed
Certain lenders and investors, provide
credit facilities through SECURITISATION Complexity
of current assets by creation of an SPV
and issuance of bonds. This mechanism Valuation of
helps in easing out liquidity. diamonds and
coloured gem
stones
Confidential | For internal circulation onlyChallenges
And
Suggestions
Confidential | For internal circulation onlyAvailability of bank credit
Current status
Negative The gross bank credit deployed to the G&J sector was INR 394 bn (USD 8.8 bn) in 2011, which
Trend peaked to INR 738 bn (USD 10.8 bn) in 2017 and is INR 657 bn (USD 9.5 bn) as on 24 May 2019.
USD / INR Movement Gross bank credit deployed to the G&J sector
800 720 736 727 738 727 720
657
INR / USD Billion
609
600 503
394
400
200
8.8 10.8 9.5
- 2011 2012 2013 2014 2015 2016 2017 2018 2019
INR Billion USD Billion
Source : RBI Statistics
The ongoing trade war may bring about a shift
in the global trading patterns, which is an The industry turnover (exports & domestic sales) grew from
01 ~USD 42 bn in FY 2009 to USD 75 bn in FY 2019. i.e. by 75%
opportunity for INDIA to seize. The exports of
G&J sector is ~USD 40 bn i.e. 6.4% of the The gross bank credit to G&J sector was ~USD 8.8 bn in FY
02
global exports, and has a potential to capture 2009 and is ~USD 9.5 bn in 2019 i.e. growth of only 8%
15% of the global market, to become the Long credit support cycles & the depreciating rupee has
largest exporter globally. 03 restricted the flow of credit and hampered business growth.
Confidential | For internal circulation onlyTrade Insurance
Export credit guarantee cover
Current GJEPC with support from the MoC&I, recommended Rs. 125.00 crores as threshold credit limit
Request for determining a unit as an MSME and providing WTP cover for such units.
View of the trade members View of the ECGC
• No availability of WTP for new export entrants. • In the last 10 years, G&J sector claim
• Only individual policy is available, without automatic ratio went up significantly.
renewal, causing delays. • As at 2019 year end, INR 15,879 cr
• In spite of growth in exports from USD 21 bn in 2008 to USD was o/s under the WTP.
40 bn in 2019, and depreciating rupee from INR 40 to INR
70, the total credit cover under WTP has reduced from INR • Trade needs to be self regulated to
24,500 cr to INR 14,500 cr. regain confidence of the insurers.
• The INPS is a new ‘avatar’ of the WTP policy, therefore post
shipment premium should be borne by banks, as per the RBI
WTP guidelines.
With the efforts of the CoC, SBI introduced a revised credit policy for the G&J sector with a “Waiver of INPC / INPS
cover” subject to additional security of 10%, which should be implemented by other banks as well.
Measures taken by GJEPC
The GJEPC made several representations to the Government to introduce a new credit insurance scheme
01 for MSMEs which is under consideration. As proposed, adequate cover will be provided to banks for
MSMEs having a turnover of upto INR 250 cr and credit limit of upto INR 80 cr.
Confidential | For internal circulation onlyInitiatives towards MSME
Micro, Small and Medium Enterprises
Current MSMEs contribute ~45% to India's exports, ~25% to the GDP from service activities, over 33%
status to the manufacturing output of India and employment for about 111 million people. Likewise,
80% of the players in the G&J sector are MSMEs.
ECGC Export Incentives for MSME
insurance
cover
01 Interest Equalization / Subvention Scheme (IES) – 5%
No
Gold card
reduction
scheme 02 Credit Link Capital Subsidy Scheme for technology up gradation
in credit
GJEPC benefits
limits
Initiatives
(In process) 03 Marketing Assistance Scheme
Reduction To include
04 Advance Authorization Scheme
of INPS trading
insurance under IES
premium scheme 05 Export Promotion Capital Goods – Duty free imports
Measures taken by GJEPC
GJEPC set up a separate MSME focused team to promote financial literacy and assist is areas pertaining to
01
Banking, Insurance and Taxation.
Proposed introduction of a new credit guarantee insurance scheme for MSMEs which is under
02
consideration and is expected soon.
Confidential | For internal circulation onlyThe Way Forward
Confidential | For internal circulation onlyGoing forward everyone has a role in
REDEFINING BUSINESS STRATEGY
Trade Banks
• Register with MyKYCBank. • Set up a long term credit risk investigation team to
• Timely and proactively approach track, monitor and provide intelligence information
lenders / GJEPC to mitigate about trade members, to take informed credit
liquidity / credit risk. decisions and be a part of the MyKYCBank.
• Ensure total transparency in • Assessing credit limits in dollar terms to insulate
exchange of information and exporters from exchange fluctuation in lines with
business operations with bankers. the RBI circular.
• Adopt stock maintaining tools for • To inform GJEPC about defaulting members and
valuation of inventory. share critical information periodically, so that
necessary actions can be taken.
• Participate in seminars and share
feedback on trade related • Provide gold card benefits to eligible entities.
matters with the GJEPC. • Promote ease of doing business and reduction of
• Accept and understand the compliance
importance of external credit • Provide precious metal loans including gold loans in
rating. smaller quantities for benefit of the MSMEs.
Confidential | For internal circulation onlyGoing forward everyone has a role in
REDEFINING BUSINESS STRATEGY
Government Government bodies
• Interest equalisation scheme / Reserve Bank of India
competitive interest rates to be • Remove ceiling on the number of DDA accounts
extended to the entire industry especially
MSMEs to enable global competitiveness. • Allow individuals to access their own CRILC,
IDPMS, and EDPMS database.
• Promote MSME funding to increase
employment, growth and diversify risk. • Streamline IDPMS, EDPMS and standardize
documents required for export and imports for
• Provide reforms and incentives to betterment of the trade and the stakeholders.
promote the trade, ease of doing
business and reduction of paperwork. • Direct banks to bear post shipment insurance
premium under INPS as per RBI WTP guidelines.
• Enable a job work policy for the sector,
which is a practise followed globally. • Give priority sector status for Exporters.
• Reduction of import duty on gold and ECGC
polished diamonds • Provide adequate cover to protect the interest
• Convert SEZs to Economic Employment of the trade, bankers & especially the MSMEs.
Enclaves to promote employment for • Permit transposition of banks within the
domestic & export markets. existing WTP framework.
Confidential | For internal circulation onlyNotes
Confidential | For internal circulation onlyNotes
Confidential | For internal circulation onlyThank you
For any information contact:
Tel : 91 22 2654 4600
Fax : 91 22 2652 4764
ho@gjepcindia.com
www.gjepc.org
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