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Bank Scam: A Chance for Gold Industry to Restore its Dignity

Bank Scam: A Chance for Gold Industry to Restore its Dignity?

Ahammed MP, Chairman, Malabar Gold & Diamond

 

The Punjab National Bank scam has come as a bolt from the blue for the gold industry and at the wrong time. The industry, after a tepid 2017, was limping back to normal and hoping for a better year in 2018. A broad-based global recovery, with uptick in demand and prices, was strengthening these hopes. Domestically also, the pangs of the uniform tax code and demonetisation were ebbing out. Headwinds were slowly giving way to tailwinds. News of a 7.2 per cent economic growth at home should have lifted sentiments, but there came the scam.

The industry was looking forward to the follow-ups on the budget announcement about a comprehensive gold policy to restore the metal as a strong asset class. Reports suggest that a committee of the Niti Aayog has made positive recommendations, including tax cuts and a liberalised approach towards gold, so that its contribution to GDP goes up to 3 per cent by 2022. The report takes a positive view on many core areas like promotion of gold mining and setting up of a gold board with statutory powers to resolve all issues through a single window mechanism. But now, this move will get stuck in this crossfire of scam and all efforts for a gold policy would be put on the backburner.


The biggest fallout of the scam is not on the credit exposure to the gold industry, but the wrong perception cast on the gold and diamond business. All those in gold trade are not bad sheep. The entire sector cannot be punished because of a handful of tainted people. The industry, 90 per cent of which are medium and small units, employs 6.1million people. Gold trade is the second-largest foreign exchange earner. Banks should take into consideration all aspects of an organisation, including the business model and capability to repay the money, before sanctioning a loan. Genuine transactions should be encouraged as such deals will accelerate economic growth.

 

We can anticipate tightening of credit flows to the sector, though gem and jewellery still account for only a fraction of total lending. According to RBI data, bank loans to the gems and jewellery sector as of December 2017 stood at Rs 69,000 crore which translates to less than 1 per cent of the gross bank credit of Rs 73 lakh crore. We must be prepared for a delay, additional documentation, extra guarantees etc in securing loans. That is fine for genuine players who depend on banks for short-term financing. But tight liquidity should not lead to job cuts in the sector due to fall in production.

 

More importantly, how long will it take to change the bad reputation thrust on the sectors. We can take this as a positive opportunity to cleanse the system and bring in better transparency. The industry is all for transparency. The onus is on the government which has to finish the good works initiated, by announcing a comprehensive policy in line with the recommendations of Niti Aayog. The industry and government should take steps to eliminate the black sheep and weed out undesired elements, including illegal smuggling of gold.

 

Disclaimer: Views are personal and not the views of the publisher.