Banks Appeal to RBI for Authorization to Offer Silver (Metal) Loans to Jewelry and Artifact Manufacturers Amid Growing Export Demand.

Banking institutions have formally requested the Reserve Bank of India (RBI) for permission to introduce silver (metal) loans tailored for jewelry and artifact manufacturers, primarily driven by robust international export demands.

Bank representatives have pointed to the commendable success achieved through the introduction of gold loans back in 1998 as a precedent for their current request.

For instance, the State Bank of India (SBI) currently extends working capital financing to jewelry manufacturers through gold loans. Under this scheme, jewelers are empowered to secure gold as a loan from the bank, which they then use for jewelry production and subsequent domestic market sales or exports.

The nation's largest bank, SBI, provides gold loans that span up to 180 days for domestic utilization and up to 270 days for export-oriented endeavors. In this arrangement, a collateral of 110% Bank Guarantee, Term Deposit Receipt, or Working Capital Limit is mandated. Repayment is allowed in Rupee equivalents, determined by the prevailing gold rate. Gold loans obtained through the Short Term Bank Deposit Scheme can be repaid in increments of 1 kg or multiples thereof.

BK Divakara, the Head of Strategy & Corporate Legal at CSB Bank, highlighted how certain banks, as nominated entities, engage in lending out gold that is deposited by institutions like Tirumala in Andhra Pradesh and Kateel in Karnataka. This practice enables the deposited gold to generate interest, with the lent gold being directed toward jewelry and watch manufacturers. Interest is collected in terms of gold. Banks also act as agents for the sale of imported gold on a consignment basis. Borrowers often purchase gold from banks to settle their loans, effectively concluding this cycle of business.

Turning to the proposition of extending silver metal loans, Divakara acknowledged that such a move would necessitate significant space for sourcing and storing the precious metal within bank branches.

Bright Prospects in Exports

Despite the prevailing global economic slowdown, the export of silver jewelry in the previous fiscal year displayed an encouraging growth of eight percent, amounting to $2.93 billion (equivalent to ?23,493 crore). This notable increase in silver jewelry exports was observed alongside a broader decline of five percent in overall gem and jewelry exports, which totaled $38 billion.