Prices of small polished diamonds, also called melees, are expected to drop further in the next three, to four months as diamond manufacturers in Surat are selling off their inventories at discounts of 30 to even 40 percent to pay of loans they have taken with their local banks, The Times of India reports.
The newspaper said that banks have given their diamond manufacturing clients until the end of the month to pay off their debts. Indian banks that have been serving the diamond sector have made efforts to reduce their exposure to the Indian diamond sector, especially in the wake of the various cases of bank fraud reported during the past years. Reportedly, the collateral demanded by the banks from their diamond clients was lifted to 100 percent.
Consequently, since diamond companies are now facing serious liquidity problems, have responded by selling off stocks at discounts. "Diamond firms have annual credit lines with the nationalized and private banks for purchasing rough diamonds from the mining companies like De Beers. Since the rough diamond prices have remained unchanged and in some cases increased by almost 15% . these companies have to repay in full amount. On the other hand, the polished diamond prices have reduced by 20-25%....eroding the profit margins of the companies," the paper wrote.