The Indian jewellery manufacture and retail industry’s current ₹80.7 billion ($1.24 billion) in stressed assets or bad loans is in danger of ballooning into ₹208.9 billion ($3.2 billion) in bad loans given the financial shock of the Nirav Modi-Mehul Choksi bank fraud of nearly $2 billion, warns a report in the Business Standard.
Unlike in many other countries, Indian jewellery retail is not a standalone sector and is in many cases operationally and financially interconnected with both diamond and gemstone polishing as well as jewellery manufacture.
According to the report, which quotes the CARE ratings agency, total credit outstanding to the Indian gem and jewellery manufacture and retail industry is currently ₹690 billion ($10.6 billion) or about 1 percent of the country’s ₹72.63 trillion ($1.1 trillion) gross bank credit. About 11.7 percent of the loans to the gem and jewellery sector (₹80.7 billion or $1.24 billion) constitute stressed assets. This is below the average 12.2 percent stressed asset ratio for the national banking system as of September 2017.
According to the report, 30 percent of the country’s gem and jewellery retail market, estimated at ₹3.9 trillion ($59.8 billion) is controlled by organised groups. Data from 22 of these organised firms indicates they employ some 22,000 personnel, constituting between 12 and 15 percent of the total industry workforce not including craftsmen and temporary employees. Mehul Choksi’s Gitanjali group and Nirav Modi’s Firestar Diamonds constitute two of the biggest in this group of companies.
Given that some 2,800 people in the Gitanjali and Firestar groups are now going to be jobless along with another 7,000 or 8,000 staff of franchises and temporary workers who will be impacted as well, the report says, a simulation analysis shows that the non performing assets for the sector could subsequently rise to about 30 per cent, equating to a value of ₹208.9 billion ($3.2 billion).