India is famous for diamond processing and the industry earns a large amount of foreign exchange for the country. Export of finished diamonds is on increase and forms an important segment of overall export from the country. Diamond export has some special features in as much as rough diamonds are imported and the same we processed on contract basis by artisans. The labour charges are generally paid after the job is completed and cut & polished diamonds are then exported.
Looking into these special features of this industry it is necessary that the assessment of working capital for such units may be done in a different manner so that these units do not suffer for want of bank funds and there is healthy growth of exports. The basic methodology remains the same but some relaxation specially allowed for this industry we highlighted in the following paragraphs.
2nd method of lending is uniformly applicable in respect of diamond
exporters.
Norms / broad indicators for Inventory
& Receivables
Diamond exporters need finance to make advance payments for import or local purchase of raw materials viz., rough diamonds and to hold stocks in process and finished diamonds pending sales thereof. Post‑shipment facilities are also necessary to support the sales. The norms prescribed by Reserve Bank of India have since been abolished. Reserve Bank of India has however, given broad indicators for the levels of inventories & receivables. The banks are however free to determine the levels on case to case basis. The broad indicators of Reserve Bank are as given under:
Raw
material & Finished Receivables
Overall
For DTC Sight holders 3.5 months 1.00
months 3 months *7.50 months
For non DTC Sight
Holders 3 months 1.00months 3 months *7.00months
Finalisation of consortium arrangement is necessary for all borrowers under this category who are enjoying fund based credit limits of Rs. 50.00crores or more. Even in cases where formation of a consortium is not necessary and them exists a multiple banking arrangement, formal meetings of all the financing banks is required to be held once in three months to exchange information on the borrower and to review the overdues, if any.
Diamond exporters are eligible to avail packing credit in foreign currency and also running a/c facility under PCFC as per guidelines issued by Reserve Bank of India in this regard. Full details of PCFC scheme and running ale facility have been given in a separate chapter on 'Export Finance'.
Special forms I to III under Credit Monitoring Arrangement (CMA) have
been prescribed for proper assessment of need based credit requirements of
diamond exporters. Other forms are the same as applicable to other borrowers.
Diamond exporters may also enter into multiple banking/consortium financing as
per general procedure in this regard.
Besides submitting statements under the 'Quarterly Information System'
the diamond exporters will also be required to submit a monthly statement
containing the following particulars
(i) Current
assets.
(ii) Borrowing
arrangements and outstanding.
(iii) Bank‑wise
position of stocks hypothecated showing separately the quantity and value of
stocks held by the borrower in the form of imported roughs, roughs under
processing and fully processed gee& (cut & polished diamonds) pending
sale.
(iv) Quantity and
value of goods held by the contactors on behalf of the borrower for processing.
(v) Export sales
performance achieved during the 3 months preceding the date to which the
statement relates, so as to enable the bank to watch the trend. If wide
variations m noted, masons therefore should be clearly stated.
Performance of special form I to III are given as Appendices 19.I to 19.III.
Trading in conflict diamonds has been banned by UN Resolution Nos. 1173 and 1176. With a view to ensuring no support is extended to any trading in conflict diamonds and the legitimate trading in non‑conflict diamonds is not affected, an undertaking is to be obtained by banks from the clients who have been extended credit for doing any business relating to diamonds (see Appendix 19.IV).
1[As per new UN mandated Kimberley Process Certification Scheme (KPCS)
which has been adopted, among others, by India. it has to be ensured that no
rough diamonds mined and illegally traded enter our country. Various measures
have been taken in this regard including a system of import into India of
diamonds being mandatorily accompanied by Kimberley Process Certificate (KPC).
Similarly, the exports from India would also be accompanied by the KPC to the
effect that no conflict/rough diamonds have been used in the process. These
KPCs would be verified /validated in the case of imports/exports by the Gem and
Jewellery Export Promotion Council, which has been designated, under the KPCs,
as Importing/Exporting Authority by the Government of India. It has therefore
been decided that banks should obtain a modified undertaking as per format
given in Annexure 19.IV, from all the clients who am being extended credit for
doing any business relating to diamonds to ensure that the client complies with
the KPCs guidelines. The existing system of prompt reporting to RBI of any
violation of UN Resolutions as and when noticed as laid down in above circular
would continue.]
Particulars of the Existing
Limits from the Banking System
Limits
from all banks and financial institutions as on a date near to the date of the
application (Amounts ‑ 000's omitted)
|
Name
of Bank/ Financial
Institutions |
Nature
of facility |
Existing limits |
Extent to which were utilised during the last 12 months Maximum Minimum |
Balance
outstanding as
on (Date:......................) |
|
(1) |
(2) |
(3) |
(4)
(5) |
(6) |
1.
2.
3.
4.
6.
7.
B. Medium term and long term
loan; (excluding working capital term loans) and deferred payments credits
1.
2.
3.
NOTES:
(i) Information
to be given separately in respect of each of the credit limits under short term
loans (for working capital), cash credits/overdrafts, export credit, working
capital term loans (i.e. loan created out of the 'excess' borrowing identified
under the relevant method of lending to make up the deficit in the networking
capital), bills purchased and discounted, medium term and long term loans,
deferred payment, credits etc.
(ii) In
this form, details of credit limits available to the borrower from the entire
banking system, including ad hoc limit /casual borrowing and also those from
die term lending institutions should be given.
(iii) Maximum
and minimum utilisation of the limits during the past 12 months and the
outstanding balance as on a recent date should only be given; month‑wise
figures need not be given.
(iv) In the
case of term loans, only the original amount of each loan and the present
balance outstanding should be indicated in columns 3 and 6 respectively.
(v) If
there are large unutilised limits, the reasons therefore should be given.
(vi) In
case of post‑shipment credit the specific sub‑limits against COD
export and D/A export should be specified.
(vii) DA
Import LC limits ‑ bank guarantee favouring MMTC etc. for credit
purchases, if any, should also be specified.
[M1]As a general practice in the diamond trade, labour charges for processing are paid after the job is executed. The stock‑in‑process is, therefore, valued only on the basis of raw materials cost.
[M2]As a general practice in the diamond trade, labour charges for processing are paid after the job is executed. The stock‑in‑process is, therefore, valued only on the basis of raw materials cost.
[M3]Inserted by Circular No. IECD 13/04.02.02/2002‑03, dt. 3.2.2003.