Makers to sell ornaments to jewellers only via PDCs
The decision to sell ornaments against PDCs was agreed upon at a board meeting convened by the India Bullion and Jewellers Association (IBJA) on Monday.
This simplest mode of ‘securitization’ will likely become the norm due to concerns that alleged defaults by retailers such as Goodwin and Rasiklal Sankalchand, which ran gold investment schemes, could prompt a government crackdown on such programmes. That would put at risk the ornaments given on credit by manufacturers.
The decision to sell ornaments against PDCs was agreed upon at a board meeting convened by the India Bullion and Jewellers Association (IBJA) on Monday. “Many jewellers across the country have inventory that is on credit (from jewellery makers); the stores themselves are on lease and they run jewellery investment schemes wherein money is raised from the public, who buy ornaments by paying monthly instalments for up to 11 months,” said Surendra Mehta, national secretary, IBJA.
“Given the recent failure of such schemes run by some Mumbai-based jewellers, there is a probability that such schemes would come under the government’s glare, in which case creditors of these jewellers could be at risk.”
In gold investment schemes, a customer pays monthly instalments across 11 months and gets ornaments with the 12 month being free. Some unscrupulous jewellers, said trade watchers, could divert funds raised through such schemes to speculative businesses, putting at risk funds running into crores of rupees. Diversions also raise the risks of non-payment in the supply chain.
“It was bearing this in mind that IBJA convened a board meet to advise jewellery makers to sell goods only against PDCs, which was agreed upon by certain big manufacturers, whose actions could become a precedent for others,” Mehta said.