Diamond industry says no better days ahead if margins not improve

Antwerp Diamond Bank has over 10% market share in financing of the diamond industry

The owners of Antwerp Diamond Bank (ADB), whose closure announcement was a shock to the trade as it had lent to several, including Indian firms, have reportedly told borrowers they’d get enough time and terms to repay.

The KBC group, which owns it, are said to be discussing these terms with individual clients.

The global diamond industry is estimated at $70 billion and $15-18 billion was financed from banking channels. The bank was estimated to have a tenth of this segment. The trade in India was, and still is, worried about a resulting liquidity crunch in the medium term. Part of the reason is that some other big lenders — Standard Chartered, RBS — have cut exposure to the industry.

Shreyas K Doshi, chairman, Shrenuj Group, said “ADB’s decision to close will largely affect Antwerp-based diamantaires, mainly traders of rough diamonds. I hope they will find alternative funding arrangements to overcome this and continue the business. I also hope ADB will reconsider their stand.”

The Indian diamond trade has also been experiencing a tightening in credit norms by banks. The latter became cautious after problems with the Winsome group 18 months earlier; they were not able to service a huge loan. After that, gold import norms had been tightened. Doshi says, “Banks and financial institutions must be able to see the diamond and gold industry as having different fundamentals. These are two different domains and must not be seen as one.”

There are players who have misused the gold credit and lent a bad name to the gem and jewellery sector, said another industry source. He said 20 per cent of the diamond trade was “off the books”, due to which the other 80 per cent was suffering.

Vipul Shah, chairman of the Gem and Jewellery Export Promotion Council, said: “While there is some momentum in the industry of late, due to improved festive sales demand in the domestic and export market, the diamond industry has been facing pressure on margins. Rough diamond prices are increasing but polished diamond prices have not kept pace, due to oversupply.”

If the margins improve, industry players will get an incentive to bring back the investments from other assets classes like real estate and equities, believe industry experts.

Shreyas Doshi said, “It is high time the government considers the industry demand for a simpler tax regime that can lead to higher compliance. This could be based on turnover tax or presumptive tax, as the margins in the industry are low and more or less uniform.”