 "Jewellery sector faces working capital squeeze")
Suspension of gold deposit schemes after last year’s change in the Companies Act has created a working capital squeeze for domestic jewellery manufacturers and retailers.
Under the amended Companies Act, money accepted under such schemes would be considered as public deposits, on which the return should not exceed 12 per cent.
Borrowing of working capital from banks has also become difficult as, say sources, lenders have kept the jewellery sector under a ‘high risk’ category, due to a couple of large defaults.
The squeeze in liquidity is likely to affect the sector’s revenue and profits.
Earlier, gold importing banks were extending gold as a loan to jewellers at an interest rate of four to six per cent. After introduction of the 80:20 scheme (to supply a fifth of all imported gold lots to exporters) in August 2013, which effected suspension of gold loans, banks converted their existing residual loans into a corporate one, with an interest rate between 14 and 18 per cent.
While the 80:20 scheme was scrapped in November 2014, gold leasing hasn’t taken off.
“Such a high interest rate is unviable. We urge the government to direct banks to sanction at least a fourth of last year’s turnover as an immediate release of a working capital loan, at par with other industries at 10-11 per cent, if not lower. Default of one or two companies should not be taken as a yardstick for measuring all players in the industry,” said Bachhraj Bamalwa, managing director of Nemichand Bamalwa & Sons, a Kolkata-based jewellery manufacturer and retailer.Under the amended Companies Act, money accepted under such schemes would be considered as public deposits, on which the return should not exceed 12 per cent.
Borrowing of working capital from banks has also become difficult as, say sources, lenders have kept the jewellery sector under a ‘high risk’ category, due to a couple of large defaults.
The squeeze in liquidity is likely to affect the sector’s revenue and profits.
Earlier, gold importing banks were extending gold as a loan to jewellers at an interest rate of four to six per cent. After introduction of the 80:20 scheme (to supply a fifth of all imported gold lots to exporters) in August 2013, which effected suspension of gold loans, banks converted their existing residual loans into a corporate one, with an interest rate between 14 and 18 per cent.
While the 80:20 scheme was scrapped in November 2014, gold leasing hasn’t taken off.
Almost all jewellery companies, barring a few exporters, posted a loss in the quarter ended September due to a steep decline in sales. The December quarter is unlikely to be different.
Most jewellery companies that had introduced various schemes to accept monthly deposits of a fixed sum for various maturities to facilitate customers’ purchase of ornaments have suspended these.
“We are not accepting any fresh deposits under the famous ‘Kalpataru’ gold accumulation plan due to unfavourable norms. Renewals are also not accepted. On re-launch of the scheme, we will approach the customers,” said a senior official at Tribhovandas Bhimji Zhaveri.
Titan Industries and Kalyan Jewellers have re-introduced gold deposit schemes but in a different format. Sandeep Kulhali, vice-president of Titan, said: “At this point, we can only confirm the scheme's re-launch,” without divulging details.
A Kalyan Jewellers’ official, said, “We do not offer any bonus in the re-launched scheme. But we give customers returns more than equivalent to one month of the amount under the deposit scheme.”
“We have not re-launched the deposit schemes. We are in the process of clearing customers’ deposit amount by March, either through cash or encouraging them to purchase jewellery,” said R K Sharma, chief executive officer, PC Jewellers.
Meanwhile, all jewellery retailers are aggressively promoting online sales to capture a part of the internet-based sales boom.