Corporates takes on a glittering edge - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Corporates takes on a glittering edge

Jul 26, 2000

Gold seems to have acquired a retail edge. The commodity, which was till recently banker's apple pie, has all of a sudden grabbed the attention of the corporate sector and mutual funds. One of the first corporate house to tap the yellow metal, Autoriders India Limited has converting its automobile showroom located at Santacruz, Mumbai, into a gold retail outlet through which it will sell 24-carat gold bars. The company has decided to rope in World Gold Council for marketing and selling its bar of yellow metal in the market. It has entered into an alliance with Handy& Harman Refining Group (an international refinery house) for setting up a refinery in Shripur (Dhule), Maharashtra.

The fact that Unit Trust of India (UTI) is considering shelling out gold to policyholders of Grihalakshmi Unit Plan (GUP) at the time of redemption of the scheme clearly indicates that the commodity has already acquired a retail edge.

So what is it that is making banks, mutual funds and corporates to take a deep plunge into gold retailing which was till recently considered as an illiquid non tradable commodity.

The fact that the commodity is a natural hedge against inflation and currency depreciation, gives it a glittering edge.

At present, only three banks have launched their gold deposit scheme---State Bank of India (SBI) and Corporation Bank and Canara Bank. Allahabad Bank and Bank of Baroda (BoB) are in the process of launching the deposit scheme.

Even the gold loan scheme offered by banks to jewellery exporters has many takers. However all the fourteen nominated banks allowed to import and conduct retail gold business in the domestic market are currently asking for a level playing field vis--vis non-financial government enterprises which are active bullion lenders in the domestic market.

The non-financial government enterprises like MMTC, State Trading Corporation (STC), Project Engineering Corporation limited (PEC) and Handloom and Handicraft Development Corporation (HHDC) advance gold to retailers at a cheaper rate as their cost of lending gold to the domestic retailers works out to be 2%-2.5% cheaper than other agencies. The reason: the government agencies do not have to maintain reserve requirements while banks' gold deposits are subjected to statutory liquidity ratio (SLR) and cash reserve ratio (CRR). Bankers are worried that their gold deposit and loan schemes will not take off unless disparities relating to reserve requirements, which banks have to maintain, are done away with. These reserve requirements increase the banks lending cost of metal as against these government enterprises.

The Companies Act and not the Banking Regulation Act governing the government agencies, which retail gold in the domestic market, hence they do not attract any SLR or CRR on gold. Going by the Banking Regulation Act, banks have to maintain 8.50% as CRR and 25% as SLR on their liabilities, which are borrowings like a deposit scheme or a loan scheme and capital adequacy of 8% on their lending. It is quite unlikely that the central bank will relax regulations pertaining to SLR and CRR

requirement in relation to gold deposit and loan scheme. Unless some relaxation pertaining to the guideline comes into force, banks will find it a little tough to sell these products to customers.

Equitymaster requests your view! Post a comment on " Corporates takes on a glittering edge ". Click here!


More Views on News

These Stocks Have Rallied Over 300% In the Last 12 Months. Is the Rally Justified? (Views On News)

Nov 12, 2021

As many as 150 stocks from the BSE 500 index deliver multibagger returns in the past one year.

Ultimate Guide to Hedging Your Portfolio (Fast Profits Daily)

Sep 21, 2021

How can you protect your portfolio in a market crash? Find out in this video.

Ride the Indian Real Estate Revival with this 'Different' Smallcap Stock (Profit Hunter)

Mar 23, 2021

Affordability in the housing segment has never been so good in last one and a half decade. Here's how you could make the most of it...

My Latest Stock Recommendation (Fast Profits Daily)

Oct 9, 2020

How I picked an exciting stock using trends from both the commodity and equity markets.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms