Polished diamond manufacturers in Surat and Mumbai have started liquidating their inventories at significant discounts of up to 30-40% in the attempt to settle loans with banks, writes the Times of India. The Indian daily says that diamond companies have been "given the ultimatum to settle their outstanding loan accounts before March 31."
India lenders to the diamond industry are reducing their credit exposure to existing customers in the industry by nearly 50% in the wake of major bank frauds over the past two years. They have also demanded 100% collateral to avoid defaults. The move comes amid what the newspaper is calling a "liquidity crisis", Diamond firms have annual credit lines with the nationalized and private banks for purchasing rough diamonds from the mining companies, but they have to pay the miners cash up front, while the terms given to retailers are often on a 90 days or more repayment schedule, so the cash goes out while they wait for it to come back in.
Additionally, polished diamond prices have declined across nearly all categories, and particularly for so-called 'Indian goods', the low-quality or small diamonds manufactured in Surat. Rough prices, on the other hand, have remained firm after rising last year. Aniruddha Lidbide, diamond industry analyst said, “The diamond companies have no choice but to liquidate their polished inventories to repay their bank loans by March 31 ... The diamantaires are staring at huge losses to repay the banks."