Fall in bank credit may delay jewellery sector recovery

The consistent fall in bank credit to the gem and jewellery industry may exert further pressure and delay the recovery of the sector which is already reeling under unprecedented drop in demand after the Covid pandemic outbreak.

The stress due to the lack of bank lending to the gems and jewellery industry is much more evident with unorganised and small-scale players. Since the financial scam broke out in January 2018, bank lending to this industry is on a consistent decline.

As on March 2018, outstanding credit to this industry stood at ₹72,700 crore, which declined by ₹600 crore in FY19. Credit growth further witnessed a sharp fall of ₹12,500 crore in FY20.

The outstanding credit to this industry stood at ₹59,600 crore as of this March-end. Such cautious bank lending can create further stress on liquidity.

Challenging times

The last fiscal was the most challenging with unfavourable government regulations in the form of high custom duty, stricter customs inspection procedures, declining demand from exportmarkets, adverse exchange rate movement and squeeze on working capital by banks.

With the lengthened lockdown in India, jewellery stores remained temporarily shut for about 40-50 days, leading to negligible sales even on lucrative occasions like Akshaya Tritiya.

Elevated gold prices and falling consumer sentiments further impaired end-user demand.

Near-term prospects for the industry are not too bright, owing to expectations of rising prices of precious metals, and the economic slowdown negatively impacting disposable incomes and leading to low consumer sentiments.

To top it all, the spread of the Covid pandemic in key export markets such as US, Europe, China, Hong Kong and UAE has created further hurdles for this export oriented industry.

Gross exports of gems and jewellery witnessed a steep decline of 44 per cent to $1.90 billion in March, the sharpest fall in past five years. It was the 12th consecutive monthly dip witnessed exports growth. In FY20, gross exports of gems and jewellery fell by 10 per cent to $35.53 billion.

“We expect gradual recovery from December quarter onwards, which marks the onset of the festival and wedding season. However, long-term prospects for the industry remain stable owing to growing consciousness of branded jewellery, increasing purchasing power smaller cities and growing population of working females,” said a Crisil report.