India’s diamond industry plans to reduce its bank financing needs by a third to $4 billion for the current financial year from $6 billion in FY23 as waning global demand for the gems threatens to make accounts sticky. They are now busy clearing their inventory instead of creating new stocks that would require additional borrowing.
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Diamond traders have already stopped imports of rough diamonds for the two months till December 15. The sharp decline in diamond financing was divulged by bankers at a meeting recently with big diamond exporters.
“The diamond trade has become more transparent in dealing with banks. They are no longer hiding their problems and upfront talking about the current situation in the global markets to the banks,” said Bhargava Vaidya, a gem and jewellery trade analyst.
In 2018, when the alleged Rs 13,000 crore Nirav Modi scam broke out, the diamond trade had faced tough times to secure credit lines from banks. The banks had asked for higher collaterals and took stringent measures while lending to the sector.
But, this time, they are not making any mistakes and keeping the banking sector in the loop. “We have informed the bankers that we are treading cautiously and not creating an inventory in the backdrop of slowing demand in the US and China,” said Kirit Bhansali, vice-chairman of the Gem & Jewellery Export Promotion Council (GJEPC).
Amid a slowdown in the affluent markets, sharp fall in prices and geopolitical tensions, Indian diamond houses, which cut and polish nine out of 10 stones globally, have informed the bankers that the next four months would be crucial.
As there is less demand in the export markets, the price of solitaires of certain categories has fallen by nearly 35% since January.
With China, the second largest market still to rebound, the trade is betting on Diwali, US Thanksgiving (November 23), Christmas and finally Valentine’s Day to push out the unsold gems.
Diamantaires emphasised the importance of “de-inventorising” the diamond chain as a critical step in revitalising profitability, building trust, and restoring confidence in the diamond market. Earlier, the inventory of larger diamonds was two to two-and-a-half months. But it has since risen to four-and-a-half months. In the case of smaller diamonds, the inventory has gone up to four-and-a-half months.
Traders said an encouraging sign is the increasing shift in jewellery consumption from gold to diamonds within India, indicating positive developments in the domestic market. “Moreover, emerging markets like India are poised to account for a significant portion of global diamond consumption, potentially ranging from 20-30%. A resurgent Japanese economy also presents a positive outlook for the industry,” said Vipul Shah, chairman, GJEPC.
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Shah added that China’s underperformance in terms of diamond jewellery consumption remains a concern. “Banks were also under pressure due to the reduced return on capital. However, one positive sign is that the outstanding for the diamond industry has been down by more than 30% since March this year. Yet, this also poses challenges for banks because, under the new Basel Regulation, they must bear the capital cost on the limits sanctioned,” he said.
