Good news for synthetic diamond makers! SBI frames policy to fund them

New Delhi: In a move that could provide a major boost to the lab-grown diamonds’ industry, India’s largest private lender State of Bank of India has become the country’s first bank to come up with a policy to fund makers of the man-made stone.

While lab-grown diamonds come across as replicas of the natural stones, they are often viewed with suspicion by high-street banks. However, the move by SBI could bring a reliability factor to the industry. The policy formalisation comes at a time when jewellers have started setting up factories in Surat to produce synthetic diamonds.

Additionally, several diamond houses are planning to relocate from the financial capital Mumbai to the southern Gujarat town, which has been the hub of diamond cutters and polishers for decades. "The man-made (or lab-grown) diamond lobby is becoming stronger by the day. Though volumes are still a fraction of natural diamonds, SBI probably thinks it is an emerging business,” a senior industry person told Economic Times.

The public lender had formalised a policy to fund units engaged in manufacturing of lab-grown diamonds a few weeks back, but under certain conditions. "It would be largely term loans for machinery import,” an SBI source confirmed.

The bank’s operational guidelines for financing man-made diamond houses include the standard prudential practices like "treating non-fund limits at part with funded limits", critically looking at the "dependency on single buyer as percentage of annual sales", obtaining business credit report on overseas buyers from agencies like Dun & Bradstreet, and getting hold of audited balance-sheet of buyers which are house companies and foreign clients.

Very little would be disbursed as working capital. To begin with, (SBI's) Diamond Bourse branch in Mumbai Bandra Kurla Complex and the Commercial branch in Surat have been identified for the business. Also, borrower's exposure to foreign currency has to be fully hedged except where natural hedging is available, the source shared.

The bank was evaluating the volatility in price of man-made stones before making a foray into the business, according to a senior official of a private sector bank, quoted by Economic Times.

Synthetic diamonds generally cost 30-40 per cent less than the natural (or, earth-mined) diamonds. These were first manufactured by General Electric in the 1950s.

While the local production capacity for lab-grown stones is not available, apex industry body Gem & Jewellery Export Promotion Council’s (GJEPC) data showed that $358.3 million worth 'rough (or unpolished) lab-grown diamonds' were imported between April and June 2022, up from $255.9 million in the corresponding period of 2021.