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The weaker the governance of a company, the faster its shares seem to be flying

Our markets seem to be headed for good days. There is optimism everywhere and, each day, a new broker keeps predicting a higher and higher target for the index. This is a great time to open your cupboards and see what kind of shares you still own and revamp your portfolio. What is noticeable in this rally...

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Jewellers winding down gold savings schemes

Neither the RBI nor the SEBI was interested in regulating deposits collected by jewellers like Tanishq. Now, new Rules under the Companies Act 2013, are forcing corporate jewellers to stop such scheme. Will the money now go into smaller, less reliable jewelers running partnership and proprietary firms?

Titan Company Ltd (TCL) is closing its Tanishq Golden Harvest and Swarna Nidhi gold savings schemes for new and existing depositors. Their advertisement claims to have designed a fair redemption offer, the details of which will be available with their stores. It is unlikely that depositors will get extra month worth of cash or jewellery. It is estimated that TCL will make record payments of Rs1,000 crore to Rs1,300 crore till end of August 2014.  Shares in TCL fell nearly 3% on 14th July due to this announcement. PC Jewellers has also unplugged its gold savings scheme “jewels for less” and is asking its customers to get back cash or purchase jewellery of an equivalent amount.

Tanishq was running the popular Golden Harvest Jewellery savings scheme, wherein you pay in instalments for a fixed duration (11 months) and the jeweller would pay the last instalment. With this amount you can buy gold anywhere in India from any Tanishq showroom at the end of the 12-month period. The payment of the last instalment works out to be over 15% return on your scaled investment in the golden harvest scheme. There is no tax deducted and no regulatory hassles like Know Your Customer (KYC) norms.

Under Rule 3(6) of Companies (Acceptance of Deposits) Rules, 2014, no company can accept deposit, which carries a rate of interest more than what has been prescribed by Reserve Bank of India (RBI) for deposit accepting non-banking financial companies (NBFCs).

In other words, jewellers' gold savings schemes needs to be on par with public-deposit schemes. The Rules limit the return companies can offer to deposit holders to 12% and caps the total amount of deposits to 25% of their net-worth. In case of Tanishq, the total deposits are estimated to be 45% of the company’s net worth. It is clear that Tanishq schemes may be violating both conditions under the new Rules.

The way to comply with new Rules is to return the deposits to the public before 1 April 2015. If not, they will be penalised in accordance with the provisions of the Act. It means small or big jewellers will have to comply. But, will it cause trouble for small jewellers, especially if the size of deposits is huge when compared to its own net-worth? Have the jewellers kept the deposited money in safe instruments like bank fixed-deposits (FD) or in risky avenues? Moreover, have they really kept it aside or have they been using it for business operations, which can make the refunds to everyone virtually impossible?

Big jewellers like PC Jewellers, Tribhovandas Bhimji Zaveri, Gitanjali group, Gitanjali Jewels, GRT jewellers and hundreds of small jewellers have their own such gold saving schemes with varying benefits. These schemes had become widespread, with thousands of crores of rupees lying with jewellers as advances, which the government thought could pose risks and hence wanted stricter regulations to safeguard public interest.

However, the new Rules, coming under the Companies Act, covers companies.  Jewellers running their stores as sole proprietorships or partnership firms may still continue with this business.

Moneylife had written in mid February 2014 about jeweller gold savings scheme coming under the Securities and Exchange Board of India (SEBI) scanner. But SEBI is yet to wake up to thousands of crores invested by consumers in gold savings schemes of jewellers which can easily qualify as collective investment schemes. SEBI and RBI had replied to an Right to Information (RTI) application stating that such schemes are not regulated by them at all.

Moneylife had done a survey last year for our cover story on gold. Almost half of the respondents were aware of jewellery gold savings schemes offered by jewellers such as Tanishq, but surprisingly only 15%would invest in such schemes and it was more for ease of payment rather than for better returns or tax savings.

The new Rules may not apply to 'Gold Deposit Schemes' (GDS). A gold savings scheme is the opposite of GDS, which is offered by banks like SBI and registered NBFC. GDS from jewellers is unregulated. Under GDS, you give your gold to get a higher quantity of gold at the end of one year, or get monthly payment as well as return of your gold at end of the term. The interest rate for SBI GDS three-year deposit is 0.75%, for four and five years it is 1%. It’s not great, but it is calculated in gold terms. Jewellers offer a high rate of interest of 7.5%, but there is absolutely no safety.

You may also want to read...

Gold investment scheme: Is it illegal under new Companies Act?

Gold savings scheme from jewellers under SEBI scanner

Gold Savings Scheme from jewellers: What you need to know




3 years ago

The gold schemes started by Gold Companies was a runaway success where customers pay 11 equal installments and the Company pays the twelfth.
The schemes have been converted to public deposits where the effective rate cannot be more than 12% and the Company cannot raise deposits more than 25% of its net worth.
Most of the schemes have returned clients money and are winding up these schemes.

Government slaps additional $579 million penalty on Reliance

Total penalty on Reliance Industries for missing production target in four fiscal years beginning 1 April 2010 now stands at a cumulative $2.376 billion. The penalty is in the form of disallowing costs incurred

The Indian government has slapped an additional penalty of $579 million on Reliance Industries Ltd (RIL) for producing less than targeted natural gas from its KG-D6 block.


Dharmendra Pradhan, Minister for Petroleum and Natural Gas told the Lok Sabha that with this additional amount, the total penalty on RIL for missing the target in four fiscal years beginning 1 April 2010 now stands at a cumulative $2.376 billion.


The Minister said the penalty is in the form of disallowing costs incurred.


The Production Sharing Contract (PSC) allows RIL and its partners BP Plc and Niko Resources to deduct all capital and operating expenses from the sale of gas before sharing profit with the government.


Disallowing costs will result in government’s profit share rising by $195 million from 2010-11 to 2013-14, the minister said.


In a written reply to a question, Pradhan said gas output from the Dhirubhai-1 and 3 gas field in the eastern offshore KG-D6 block was supposed to be 80 million standard cubic meters per day (mmscmd), but the actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14.


This year, the output has been only 8.05 mmscmd.


On 10th July, the Ministry issued a notice disallowing $579 million in cost for output lagging targets in 2013-14.


The Government had previously issued a notice to RIL disallowing $1.797 billion in costs for falling short of production during 2010-11 ($457 million), 2011-12 ($548 million) and 2012-13 ($792 million).


Pradhan said the issue is currently under arbitration.


“The Ministry of Petroleum and Natural Gas has also raised a claim of additional profit petroleum to the tune of $115 million to be paid by the contractor, on account of dis-allowance of cumulative contract costs of $1.797 billion, till 2012-13,” he said.


After including cost dis-allowance in 2013-14, the total additional profit for petroleum claimed from RIL comes to $195 million, he said.


“GAIL and Chennai Petroleum (who buy oil and gas produced from KG-D6 block) have been directed to remit the sale proceeds of crude oil/ condensate/ natural gas from KG-DWN-98/3 (KG-D6) block, which falls due immediately into the Government account so as to recover an amount of $115.26 million at the rate of 50% by each company and deposit the same with the government,” he said.


The Minister said RIL had put up production facilities to produce 80 mmscmd of gas but “has failed to adhere to the approved field development plan in terms of drilling and putting on stream the required number of wells''.


The Ministry and its technical arm Directorate General of Hydrocarbons (DGH) blames non-drilling of committed wells for the production lagging targets, while RIL and its partners say unexpected geological complexities like sand and water ingress led to output fall.  




3 years ago

The Government alleges that Reliance is under producing from its gas fields due to a pricing issue over gas.The Company states that unexpected geological conditions are the reason for under production.

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