The Nirav Modi scam has hit the gems and jewellery segment as bankers have become reluctant to give funds to the sector and all Letter of undertakings (LOUs) have been put on hold.
The Nirav Modi scam has hit the gems and jewellery segment as bankers have become reluctant to give funds to the sector and all Letter of undertakings (LOUs) have been put on hold. In an interview to CNBC-TV18, S Subramaniam, CFO of Titan Company and Ajay Sahai, Director General & CEO of Federation of Indian Export Organisations (FIEO) spoke at length about what the sector is looking at going forward.
Below is the verbatim transcript of the interview:
Sonia: The immediate fallout of the Nirva Modi scam on the entire sector could be that organized firms like yourself could benefit on one hand and we can also see quicker consolidation because smaller companies will find it very tough to get working capital, to get loans etc. What are your thoughts on how the dynamics of the industry could change?
Subramaniam: We expect greater level of scrutiny on all lending to the jewellery sector. I won’t be surprise if that happens. Need for more collateral is something which may also be happening at this point and on top of that you also have the new regulation which is coming up which is the banning of unregulated deposit schemes which will take out a lot of working capital which a lot of small jewellers who have been taking deposits from public without any regulatory oversight also may have to stop. So a squeeze of working capital is therefore quite likely in the industry and it might force quite a few of the players to go out of the industry. So consolidation might happen by shrinking number of jewellers. It is quite likely, yes.
Latha: Can you tell us what the current situation is. Are you expecting funds are going to tighten or have you already seen it? It is almost a month now since the scam broke, what are the signs now?
Subramaniam: We hear about this happening, we heard about tightening happening already but this does tend to take a little time because things are yet to settle down in a way, a lot of investigations are happening across all banks, so I would assume that most banks would be busy in trying to figure that out first but I wouldn’t be surprise if in the next month-two months a lot of scrutiny happens on existing bank lending to the jewellery sector and to some extent I would also think that the focus can be largely on exports because of what we have seen happen here. So it is going to be a combination of all of that. I won’t be surprise if there is new regulation as well in this account. We have seen it happen repeatedly whenever there have been large scams. So I would expect all this to happen in the next few months. I cannot say it is happening right now. It may be happening in some cases but not very sure.
For entire discussion, watch accompanying video.
