Indian Banks Reluctant to Lend Due to Loan Defaults

(IDEX Online News) – Bank of Baroda Chairman and Managing Director SS Mundra said his bank was cautious in lending to diamond companies, including De Beers Sightholders and clients of Alrosa and Rio Tinto, due to the rising number of loan defaults in Surat, Mumbai and Antwerp.

"After a series of bankruptcies in the diamond sector, we are very cautious in lending to diamond companies," Mundra told The Times of India.

Banks across the world are taking a much more cautious approach to lending to diamond industry clients, with companies in India, Belgium and Israel complaining of increasingly tight and difficult credit conditions.

The State Bank of India, the country's largest lender, has exposure to diamond and jewelry companies in India and abroad of around $600 million, the report said.

Banks are requiring from De Beers and Rio Tinto sightholders collateral of 25-30 percent of the amount of loans extended, while small players are required to have on hand 100-120 percent of the amount borrowed as collateral, the newspaper report stated.

As a result, lending to small firms has dried up, thus slashing their working capital.

"We have sought to set up a finance cluster for small and medium players in the industry, who are not been able to get bank finance,” a senior Bank of Baroda official told the newspaper. “Talks are going on with the Reserve Bank of India and soon we will get a cluster in Surat."