Liquidity should be tightening in India’s diamond manufacturing sector despite the spike in activity that has taken hold in 2014. As a result, many view the current buoyant diamonds rough market with caution as it reflects a seasonal surge that is expected to slow in April at the start of the new fiscal year in India.
Indian diamond manufacturers note three factors that are affecting their bank credit in 2014: banks are seeing greater risk in the diamond and jewelry market due to a spate of high profile defaults in the past year, banks overseas are reducing their exposure to the industry and the rupee depreciation has resulted in rupee-based bank credit holding less value for their dollar-based rough purchases.
[two_third]The rupee depreciated by 20 percent against the dollar between May and September 2013 before recovering to its current level. At around INR 62.2/$1, the currency is now 12 percent below the level of a year ago.
While banks keep their financials and fix their credit limits in terms of rupees, export-focused diamantaires get their financing at the spot rate in dollars according to those limits. Therefore, their credit lines are reduced as the rupee depreciates.[/two_third][one_third_last]
“India has an advantage over other centers given that multiple banks lend to the diamond industry and given that they operate with finance consortia.”
[/one_third_last]
