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Facing huge gold imports that is worsening India’s balance of payments, the government wants to curb gold buying. However, the RBI is pushing savers to buy gold from the banks. This is one of the worst options for everybody. While banks sell you gold at a premium the RBI does not permit banks to buy them back. You will have to sell them to jewellers and get a lower price!
India is facing an adverse balance of payments mainly due to massive gold buying by Indians. While the government wants to curb gold imports, the Reserve Bank of India (RBI) has no intention to ban gold coin sales by banks. This is strange because buying gold from banks happens to be one of the most inefficient ways of buying gold. Banks charge higher rates than jewellers. However, unlike jewellers who do buy back the gold they sell, banks are not allowed to, as per RBI directive. This means that RBI wants you to buy high and sell low. Moreover, the RBI has allowed banks to easily sell the yellow metal. We visited websites of some of the top banks namely: Andhra Bank, ICICI Bank, Axis Bank, State Bank of India and HDFC Bank, and found that pretty much anyone can walk into a bank and buy gold, sometimes with no documentation required.
The reason for this leniency about gold sales by banks is that RBI wants investors to “genuinely” buy gold rather than buy financial gold vis-a-vis gold ETFs and gold mutual funds and such. The RBI governor D Subbarao said as much recently. Remember, the RBI has imposed restrictions against banks, including NBFCs, on lending against gold ETFs and mutual funds. The government had taken several steps recently, including raising import duty, to curb the inbound shipments of gold. RBI too had put restrictions on banks on gold imports, which has led to forex outflow and widening of the current account deficit (CAD). But at the same time is encouraging customers to buy gold “genuinely”.
The RBI had earlier said that specially minted gold coins sold by banks may not be in the nature of bullion or primary gold, there would be no objection to the bank granting loans against these coins. Yet, by allowing banks to continue gold coin sale, it is exacerbating the CAD deficit further.
One of the reasons it doesn’t allow banks to buy back gold is to discourage speculation. This makes no sense because people have several options to speculate in gold by taking not taking delivery. They don’t need to buy and sell gold coins from banks. Thanks to this silly idea of RBI, bank customers will have to go to jewellers and sell at a lower rate if they ever make the mistake of buying gold from banks.
That apart, banks follow different practices in their gold sales. You could walk into Andhra Bank and fork over cash to buy gold coins worth Rs20,000 without documentation. However, Axis Bank only offers gold to its customers. Anybody can walk into ICICI Bank and buy Rs50,000 worth of gold coins, but must require a cheque as the bank does not accept cash. Anything over Rs50,000, complete KYC is mandatory.
We also noticed that there is no uniformity amongst banks when it comes to customer verification. This makes is easier to target some banks to launder money. Some banks use KYC while some accept PAN cards and that too at different values. For instance, Axis Banks requires just an identity proof for gold coins between Rs20,000 and Rs50,000 and a PAN card for over Rs50,000. But Andhra Bank requires complete KYC for gold coins over Rs50,000. Strangely, SBI does not require any proof for transactions less than Rs50,000.
Only ICICI Bank, amongst the five banks mentioned above, has mentioned on its website of the limit to the number of times one can buy gold coins. One can buy six times every four months and up to Rs1 lakh per transaction (for self) and Rs50,000 on behalf of others.
One thing common among most of these banks is that an application form must be filled up while buying gold coins. Yet, this serves little purpose for those purchases that do not require documentation.