Jewellery retailers await KYC guidelines

Say Rs 50,000 benchmark is just impractical which jewellers oppose

Jewellery retails are awaiting a guideline from the government to implement the provisions of the recently amended Prevention of Money Laundering Act.

The Act which was passed by the Parliament in December 2012 makes mandatory for jewellers to seek know you customer (KYC) details from the purchaser of the jewellery whose bill surpasses the benchmark Rs 50,000.

Although, the government made the said provision applicable for the security and banking sector, jewellery and real estate had given around two-month time to adhere to the provisions. The provision was automatically made applicable for jewellery sector on February 15, 2013.

According to Baccharaj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation (GJF), while passing the Act, the government had said that a new set of rules would be framed for jewellers presumably with higher benchmark limit. But, the rules are yet to be framed. Hence, the life of the jewellers is going as usual. No new KYC is being called for even if the bill value surpasses the Rs 50,000 benchmark.

“It is impractical as even 15 grams jewellery purchaser would have to submit all details. Hence, we are waiting for the government’s guideline to go ahead. Supposing the rule comes with Rs 50,000 benchmark limit, we will represent to the government to work out a practical solution,” said Bamalwa.

According to experts, the government is closely monitoring means of black money in the system.

Meanwhile, a study by Edelweiss Securities showed that jewellery stocks have weakened by around 25% from peak levels on fears/speculations of regulatory policy changes to curb the surge in gold demand.

The government is doing all efforts to bridge the current account deficit (CAD) which is partly attributed to rising gold imports also. Consequently, the finance minister raised import duty on gold six-fold in the last 15 months. The government, in January this year, hiked custom duty on gold to 6% from 4%.

Among the recommended policies to curb the chase for the yellow metal are mandatory KYC norms, removal of base rate exemption on gold loan that could increase gold lease cost by around 6%, halve the cap on gold lease period from 180 days which will impact working capital cycle and reduce natural hedge against gold price fluctuation, set a limit on gold imports, and reduce the purchase limit on jewellery without PAN card from the present Rs 500,000.

However, except for the custom duty hike and the KYC norms, others policies are only recommendations hence there is no change in ground reality. In case these recommendations come into effect, we see them as only sentimentally negative over the medium term as any increased cost burden will only be passed on to the consumers.

Organised players stand to gain market share, from the current 10%, in the medium to long term as unorganized players will find it difficult to meet new regulations.