Insurance cover for the gems and jewellery sector, especially the micro, small and medium units, will encourage banks to increase lending to the sector.

Credit flow to the gems and jewellery sector has taken a hit with scams and defaults denting the image of the industry.

The bankers have become highly cautious in lending to the sector and a credit squeeze has affected business growth.

Gross bank credit deployed to the gems and jewellery sector was Rs 394 billion in 2011, which peaked to Rs 738 billion in 2017 and has been on a decline thereafter.

“One thing that has been detrimental to the exposure to the sector from the lending point of view was the absence of an insurance cover. The Export Credit Guarantee Corporation (ECGC) in February 2014 put an embargo on fresh exposure and coverage. We have been working closely with the ECGC and the ministry to come out with a policy, at least for the MSME sector. I believe the policy is in the final stages of approval. If this happens, it will give a lot of confidence to the lending community, mainly to extend credit to the sector,” said P.N. Prasad, deputy manager (director), commercial clients group-I, State Bank of India.

Prasad said a committee has been formed comprising different industry stakeholders to bring out a uniform lending practice for the sector.

“A lot of distrust has crept into the relationship between the borrower and the lender. To allay the fear of the banks and bring in confidence, transparency needs to be strengthened,” Prasad said.