JB Diamonds Case Highlights Need for Relationship Banking

(IDEX Online News) - The State Bank of India’s (SBI) possession notice to JB Diamonds, the former DTC Sightholder that defaulted on loans totaling $174 million (Rs.7.75 billion) from a ten-bank consortium last October, only highlighted the need for large diamond banks to develop dedicated relationship banking divisions, many Indian diamond dealers told IDEX Online.

Industry insiders say that JB Diamonds default stemmed not from its diamond dealing, but from its diversification into a range of fields including real estate, oil and gas, as well as information technology, among others.

A dedicated relationship banker would have picked up on this early and remedial measures could have been effected early, industry insiders point out. Among Indian diamond financing banks, only the Royal Bank of Scotland (the erstwhile ABN Amro) has a truly dedicated relationship banking division. Other banks, including the SBI, routinely transfer their managers to other assignments.

JB Diamonds defaulted on the loan at the end of last October and since then, practically all its diamond dealing has ceased, with only its jewelry operation JB Creations still functioning. The market has long since adjusted to this and the possession notice does not, therefore, have any significant impact on the diamond community. The possession notice is understood to be strictly a procedural step as the banks try recover whatever they can.

SBI told IDEX Online that the JB Diamonds account was transferred from the Diamond Division to the Stressed Asset Management Division once it was declared a Non-Performing Asset (NPA). All current procedures have been initiated by this division.