Ad Here  
June
July
August
September
October
November
 
 
From lazy banking to easy banking Two banks: their jubilees and performances It’s a war on black money, support it. Payment banks have arrived Small is ‘more’ beautiful Emerging crisis Small finance payment banks... Bottomlines shrink, bad loans rise... Thirty more cities seek to become SMART Greet Lakshmi the banking robot Cautious and considerate Banking on Risk Financial inclusion vs unclaimed deposits Merger mania haunts banks Cradle of banks to a smart city... Well-lived... Aadhaar, niraadhaar and banking Needed a Banking Atlas Why any time money? All that glitters is not gold... Bank deposits account for 46.3 per cent of household savings New capitals of Migrant banks Reaching the Unreached… Managing NPAs... Anytime banking to anywhere banking Growing gainfully Cut in repo rate – lower than expected Drop in SLR- sparing lendable resources United India Insurance - Rs 110 crore losses have been claimed till now due to floods in Tamil Nadu One down in private sector Capital base of regional rural banks raised Big bank merger, bigger expectations Governance in Reverse Gear? Ferrying digital banking to Lakshadweep A development bank for BRICS Banking in Telangana Monetary policy continues to adopt dis-inflationary path A new development bank rising in the east… Small finance banks offer high interest rates The collaboration suite of cyber criminals LVB- A supermarket of financial services Grows Bigger New bank licences, at last... Banking overhauling or reorganisation? Why priority status? Nothing much can happen…. Hesitancy in announcing year-end results Fund healthcare clinics in villages... Lacklustre credit expansion Growing volume of stressed assets… How okay are new banks? How ‘secure’ are the secured loans? Stage set for Indian ‘avatar’ of foreign banks Good, bad and ugly A bank for women, by women What is the priority – mergers or NPA reduction? Drastic decline in asset quality Rationalised Holy or unholy? Smart banking in smart cities Mega merger is on Who is the real beneficiary? Indian customers are tech savvy Targets continue to be ad hoc The paradox: clamour for the Goliath and David Reaching out: is it slowing down? Too big to fail and too small to sail Just 660 days! Target over-ambitious... Insatiable appetite for credit Ernakulam excels... Another route for achieving financial inclusion Perhaps small is more beautiful than big!
 
All that glitters is not gold...
“The exponential growth in balance sheets of NBFCs engaged in lending against gold in recent years, coupled with the rapid rise in gold prices along with expansion in the number of their branches could be a cause of concern,” commented the Reserve Bank of India in its Financial Stability Report, Jun
THERE ARE ENOUGH reasons to be concerned about the unprecedented surge in the demand for gold. In 2011-12, 854 tonnes of gold worth US$ 45 billion (Rs 247,500 crore) have been imported to meet the growing demand for gold. Gold imports constitute as much as 10 per cent of total imports. 

The yellow metal has suddenly become an attractive physical asset, leading to the diversion of the house-holds’ savings from investment in financial assets to physical assets. This is evident from the increase in the number of jewellery shops in most of the cities. Besides the traditional goldsmiths and the posh jewellery shops, banks also have started selling gold coins. “Banks’ import of gold coins for retail sale has been a matter of concern. It has risen from one per cent of total imports in 2009-10 to 3.8 per cent in 2011-12,” the report has cautioned.

Gold advances

In a study of gold advances in rural branches of banks undertaken by me over three decades ago, the seasonality in the demand for gold advances by small farmers was found to be quite evident. Pledging their gold orna-ments, farmers used to borrow before the harvesting season and redeem them after harvesting. That was a simple hassle-free method of borrowing from banks, for those who could not offer any other asset as security. After nationalisation, many of the banks shunned gold advances. Of late however, gold advances are emerging as an important part of the credit portfolio of banks.  Banks are offering gold advances with much publicity in the city branches too. While the details of the total gold advances made by banks are not available, those made by non-banking finance companies (NBFC), which are a major source, are emerging as a major chunk of institutional credit. The total gold loans of NBFCs have increased sharply from Rs 54.80 crore at end of March 2009 to Rs 44,510 crore at end of March 2012.

The regulator’s concern about the fast growing gold advances is ex-pressed in the report as: “With more than 90 per cent of the loan assets being collateralised by only one product viz., gold jewellery, the business model of gold loan companies has inherent concentration risks. The risks, however, would materialise only in case of a steep adverse movement in gold prices. The business model of the gold loan companies is driven by borrowings, of which, bank finance forms the major component and is increasing at 
a fast rate. Any adverse development in recovery by these NBFCs or an adverse movement in gold prices may have a spill-over impact on the asset quality of the banks.”

Going further the Report mentions about the regulatory steps initiated: “This growing inter-connectedness of gold loan companies with banks was sought to be addressed through recent regulatory measures viz., the de-recognition of priority sector status of bank finance to NBFCs for on-lending against gold jewelry and through the prescription of a lower exposure limits on bank finance to NBFCs.

Actions needed

One way of curbing the demand for gold would be by restricting the banks in facilitating the sale of gold coins. Banks, including the new generation banks, have been aggressively marketing gold coins, by forcing their customers, particularly during Akshaya Thrithiya, to buy the glittering gold coins. Selling gold coins is not the core competence of bankers; it is jewelers’ job, leave it to them! 

Reducing the import of gold is the need of the hour. The Union Govern-ment is reluctant to curb the import of this unproductive item. Make those who love the yellow metal to pay to the national exchequer a price for their insatiable love for the glitters.

Author :
Reported On :
Sector :
RELATED NEWS
ABOUT IE
IE, the business magazine from south was launched in 1968 and pioneered business journalism in south. Through the 45 years IE has been focusing on well-presented and well-researched articles. When giants in the industry stumbled to keep pace with the digital revolution, IE stayed affixed embracing technology.
Read more
 
PRIVACY POLICY
Economist Communications Ltd is committed to ensuring that your privacy is protected.
Read more
TERMS AND CONDITIONS
You agree that your use of this Website and the purchase of the magazine will be governed by these terms and conditions.
Read more
 
CONTACT US
S-15, Industrial Estate,
Guindy,
Chennai - 600 032.
PHONE: +91 44 22501236
EMAIL: indecom1968@gmail.com