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RBI wants you to buy gold from banks. You will lose twice!

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.

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COMMENTS

Brijesh Singh

4 years ago

This is all nonsense that the demand for gold is from general public.I am a financial advisor and I see people engaged in Real Estate,Builders,Government Officials even clerks in few government departments buying gold in Kgs every month, that to in cash from local jewellery shops.This is all black money in the economy which is driving gold demand.
To invest in financial products one needs to do KYC formalities how ever small sum one wants to invest,but for buying gold from jewellers you need cash.

REPLY

Dayananda Kamath k

In Reply to Brijesh Singh 4 years ago

in the name of kyc and documents proofs and unimaginative rules they are driving out genuine small investors from the regulated investment avenues. all rules are to favour fiis to manipulate the markets. so dont you think it is a conspiracy to sell the country to foriegners.

Steve

4 years ago

I would rather prefer to own gold instead of the toilet roll fiat the government forces on me under the barrel of the gun. Rupee is not money as it's not backed by anything tangible.

Couldn't care any less about the "India shining". It's all a big scam by those at the top to steal the purchasing power of common man's savings. Let them collectively jump into a rivulet.

Dayananda Kamath k

4 years ago

rbi has not acted when banks were opening third party l/c in the name of bullion dealers against letter from nominated agencies in violation of import export policy. a restricted import has been made ogl by these banks. rbi woke up after years of my reporting to ban it. even they sought report from all banks about such transactions but did not act. even one of the nationalized bank lost heavily in tendulkar gold coin by unnecessarily importing additional coins non of the executives responsible were punished rather were promoted. god save this country from such regulators.

karumuri

4 years ago

the best way to curb gold imports is to ban the imports fully so that inflow will be stopped and strict vigilence is to be exercised to curb smuggling.Of course this can happen it the concerned authorities are above borad. The RBi can also think gold control which was adoped by Morarji Desai Govt.Number of plitical people,business peope and others donate gold to temples. The temples while accepting such donations should obtain the full particulars of gold so purchased by the donors and also immediately inform Vigilence Dept.if they notice that it is black money.

S BHASKARA NARAYANA

4 years ago

I purchased ICICI bank coins way back in 2001 at the then exhorbitant rates, but now gained in 2013 with deep increase in market rates for the last 12 years, that to exchange of an ornament in jewellers's shop only.

Gopalakrishnan T V

4 years ago

This statement that 'RBI wants you buy gold from banks, You will lose twice' does not seem to be correct.It is reported that RBI has not banned banks from issuing gold and this stand of RBI also does not stand justification in the present context of import of gold by banks widening the current account deficit.The RBI should have not only banned the banks from selling goldcoins and also should have insisted the banks to buy back the gold at market prices. The risk in price fluctuations has to be borne by the investors.The banks have gone for Gold coins sale to make extra income which was perhaps a wrong policy permitted by the Reserve Bank and it could have been well avoided. The banks have imported heavily the Gold coins and they have no choice but to liquidate the stock through selling the coins to customers by hook or crook.The only solution available to RBI is to advise the banks to liquidate the imported gold coins at market prices and bear the loss or alternatively, RBI can purchase the stock at cost prices the banks have incurred and increase RBI stock.Making Customers to bear the burden of banks has to be avoided as they have already burned their fingers by purchasing coins from banks at a higher cost and they are forced to sell them in the market at a lower price.This is not in good taste and RBI could have avoided by permitting banks at the beginning itself to buy back gold.

Naresh Nayak

4 years ago

The RBI should be more concerned with the flight of capital out of deposits. This is really concerning and shows that the system is tilted against savers and depositors in favour of borrowers (who themselves are not happy anyway borrowing at such high rates). Catch 22.

The RBI should allow deposit rates to go up on its part in monetary policy and the Government should allow ease of doing business through doing it by making policy. Unfortunately the Government is more interested in furthering its cause in the 2014 elections. Businesses don't borrow looking at the interest rate. Take a look at Japan. What happened? Speculators borrowed the Yen, not japanese businessmen. There was demand despondency and deflation which could have been solved by cutting sky high taxes. Reducing rates to stimulate the economy will affect gross domestic capital formation.

Gold is the trade of the next 10 years whether the RBI likes it or not. Capital will flow into Gold. The RBI might as well allow Gold as collateral if it wants to leverage people's gold holdings and funnel it into the economy. And raise deposit rates please.

Sensex, Nifty may soon see profit booking : Wednesday closing report

A close below 6050 on the Nifty may lead to a fresh selloff

The Sensex opened at 20,203 while Nifty opened at 6,120 but almost immediately the market sold off and went into the negative. At the beginning of the session itself the benchmark hit their respective intra day high. Sensex hit a five day high (including today) at 20,216 while the Nifty hit a lower high at 6,125. After the opening of the European market the benchmark hit a higher low at 20,045 and 6,070. The market then moved in a narrow sideways range throughout the day finally ended marginally in the negative breaking the three consecutive day of gains. Sensex closed at 20,148 (down 13 points, 0.07%) while Nifty closed at 6,104 (down 7 points at 0.11%). The NSE saw volume of 51.08 crore shares.

 

US stocks closed in the positive last night after data showed that US home prices accelerated by the most in nearly seven years in March while consumer confidence picked up in May to its highest in more than five years. However, the indices suffered a steep drop from the intraday highs, signaling a rejection of prices at the current highs. At the time of writing the article, premarket futures were down 0.7%.

 

Among the broader indices, the BSE Mid-cap index fell 0.39% and the BSE Small-cap index fell 0.16%.

 

Among the sectoral indices the only five indices which gained were BSE Healthcare (up 1.82%); BSE Consumer Durables (up 0.82%); BSE FMCG (up 0.58%); BSE Auto (up 0.34%) and BSE Oil & Gas (up 0.12%). Among the loser were BSE Realty (down 2.50%); BSE Metal (down 1.13%); BSE Bankex (down 0.82%); BSE Power (down 0.77%) and BSE IT (down 0.64%).

 

Out of the 30 stocks on the Sensex, 12 settled higher. The major gainers were Sun Pharma (up 7.09%); Tata Motors (up 2.69%); Hero MotoCorp (up 2.39%); Coal India (up 1.30%) and Cipla (up 1.26%). The key losers were Sterlite Industries (down 2.53%); Tata Steel (down 2.27%); Jindal Steel (down 1.98%); Gail (down 1.50%) and ICICI Bank (down 1.38%).

 

The top two A Group gainers on the BSE were— Sun Pharma (up 7.09%) and Ipca Lab (up 5.09%). The top two A Group losers on the BSE were— Wockhardt (down 10%) and Jaypee Infratech (down 9.95%).

 

The top two B Group gainers on the BSE were— Aarvee Denims (up 20%) and Ricoh India (up 20%).

The top two B Group losers on the BSE were— Winsome Textile (down 19.90%) and Delta Leasing (down 18.64%).

 

Of the 50 stocks on the Nifty, 17 ended in the in the green. The main gainers were Sun Pharma (up 7.03%); Tata Motors (up 2.77%); Hero MotoCorp (up 1.80%); Coal India (up 1.42%) and Lupin (up 1.13%). The major losers were

Jaiprakash Associates (down 3.91%); Ranbaxy (down 3.11%); Grasim (down 2.86%); Tata Steel (down 2.73%) and Jindal Steel (down 2.58%).

 

The International Monetary Fund cut its growth forecast for China this year to 7.75% from 8%, citing a weak world economy and exports, adding to concerns that the world's second-largest economy is losing momentum.

 

Except for Hang Seng (fell 1.61%) and Straits Times (fell 1.13%) all the other Asian indices closed in the positive. The maximum gin was made by Taiwan Weighted (up 0.91%)

 

The European indices were trading deeply in the red while the US Future too were in the negative.

 

The board of directors of GTN Industries has decided to sell yarn processing and knitting business on slump sale basis as a going concern. The said proposal, in due course, is subject to approval of shareholders, CDR, lending institutions and other statutory authorities as applicable. The stock fell 4.94% to close at Rs 8.46 on the BSE.

 

The board of directors of Apollo Tyres gave their approval to the management to proceed with requisite approvals and compliances on a transaction with Sumitomo Rubber Industries (SRI) by which SRI may take over Apollo Tyres South Africa (ATSA) including the Ladysmith Tyre plant and Dunlop Brand rights in Africa at a consideration of USD 60 million. The company will retain the Durban plant, through the Holding Company of ATSA, which manufactures Truck and Bus Radial Tyres and Off Highway Tyres. The closing of transaction is likely to take place in next 4 months. Apollo Tyres rose 0.11 to close at Rs 90.30 on the BSE.

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