Reserve Bank of India (RBI) governor Shaktikanta Das on March 27 announced some measures to counter the economic slowdown caused by the ongoing pandemic. Just a day before finance minister Nirmala Sitharaman had released a Rs 1.7 lakh crore package to help the poor and needy tackle problems owing to 21-day lockdown across the country. 

Here are the key takeaways from RBI governor's address:

1) Repo rate and reverse repo rate have been cut by 74 bps and 90 bps respectively. "The repo rate has been reduced by 75 basis points to 4.4 per cent. The reserve repo rate has been reduced by 90 basis points to 4 per cent," Das said addressing the media. Repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks.
2) All commercial banks and lending institutions can now allow a three-month moratorium on all loans outstanding on 1 March 2020.
3) Cash reserve ratio (CRR) of all banks to be cut by 100 bps to 3%. Cash reserve ratio is the amount of cash commercial banks have to mandatorily park with the Reserve Bank of India.
4) Incremental CCB (capital conservation buffer) implementation deferred from 30 March 2020 to 30 September 2020.
5) Net Stable Funding Ratio (NSFR) was required to be introduced from 1 April 2020. Will defer NSFR implementation to October 2020.
7) RBI Governor Shaktikanta Das predicted a big global recession and said India will not be immune to it. It all depends how India responds to the situation, he said. 

Benefit to gems and jewellery industry

All said and done, will these measures really benefit the gems and jewellery industry? Says, Executive Director GJEPC, Sabyasachi Ray, “The announcements are good and will be beneficial for the business community, however, banks have the freedom to exercise their own discretion in choosing industries. It is here that we request commercial banks to earmark considerably good percentage of their credit provision for the gems and jewellery industry.” Currently, jewellers need working capital loans, as they have fixed overheads and no business to support it. In such cases, banks should consider giving loans to this industry, because this industry is one of the highest grossing segments supporting the Indian GDP and employing over five lakh work force across India. “I applaud the government’s and RBI’s effort to ease liquidity in banks and ensure that the business community is not at a loss, in such difficult times,” he added. The RBI’s recent announcements are not enough to meet the working capital needs of the gems and jewellery industry.

According to K Srinivasan, Managing Director of Emerald Jewel Industry India, “There is no business happening at all, at present, the lockdown has affected the industry like never before, the RBI moratorium allows deferred repayment of loans by three months, but after three months the borrower has to repay the three installments, at one go. If there has been a total lockdown, no earning at all for three whole months, from where will small jewellers repay three installments at a time?” When the lockdown period ends, also people will first go out to buy essentials, gems and jewellery is the last of their preferences. So the real business for this industry may not actually take place, the way we would want it, irrespective of the gold price and marketing schemes that jewellers may announce. 

Commercial banks’ perspective

Explaining the measures from the perspective of commercial banks, P N Prasad, Dy Managing Director, State Bank of India, and Chairman of the Coordination Committee on Gem and Jewllery sector, said, “The RBI has recently cut CRR and reduced repo rate and reverse repo rates, which will infuse liquidity into the system. RBI has also eased norms for working capital assessment, margins etc. This will facilitate more credit flow to the industry which will include the gems and jewellery industry also.” Prasad had recently suggested that ECGC insurance facility should be eased for loans to the gems and jewellery industry to improve the credit to the sector and safeguard interest of commercial banks. “We have been working with the government and the ECGC to ease the norms for funding to the gems and jewellery industry, they have been working on a comprehensive package to make funding for the sector easier and ensure banks’ interest as well,” he added.

The gems and jewellery industry has two major segments, domestic and export. “We are requesting jewellers to avail Metal Gold Loan scheme which is self liquidating in nature. These are offered to jewellers, the rate of interest on this loan is lower and therefore is easier for jewellers to borrow and repay as well,” informed Prasad.

Economic crisis inevitable, Asian countries will recover faster

According to Vipul Shah, incumbent Ex-Chairman of the Gem & Jewellery Export Promotion Council (GJEPC), CEO & managing director of Asian Star Co. Ltd., this was a first lot of measures announced by RBI, there will be more measures which they will announce, which will be more beneficial for business houses.

“These points have been taken up by many of us through our representation to the government authorities. Finance ministry and RBI are looking into the needs of the industry and we are hopeful that they will take necessary steps at the earliest. The only challenge here, is to implement the facilities announced by RBI. In this total lockdown, how will banks implement RBI directives and how will the gems and jewellery industry really take the benefits that are being offered, that is the real challenge.”

Based on his vast experience and study of the industry Shah feels, big nations of the West will be the worst affected economies. Asian countries, however, due to their frugal habits, stand a better chance of recovering from the crisis faster.