Alankrita, see how this
IOU looks around your neck.
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India to Take Baby Steps Toward Gold-Linked Products
By Suvashree Dey Choudhury and Siddesh Mayenkar
Reuters
February 1, 2013
http://in.reuters.com/article/2013/02/01/gold-india-idINDEE91009U2013020...
MUMBAI -- The Reserve Bank of India plans to introduce three to four
gold-linked products in the next few months in an effort to bring 20,000 tonnes of gold held in households into the banking
system, but the measure is unlikely to cut bullion imports sharply, a senior
official said.
India is the largest importer of gold, which is its second biggest
import item after oil and contributes around 10 percent to the total import
bill.
Large gold imports are a worry for the government and the RBI, with
the current account deficit shooting to a record high in the September
quarter, pressuring the rupee and adding to inflationary pressures.
The RBI plans to mobilise the unused gold by
lending it to importers and exporters of the yellow metal, in a move it hopes
will bring down the demand for physical gold.
It wants banks to encourage products linked to accepting physical gold
as deposits and investing public money in gold related products, and extend
loans against gold as collateral.
Indians own about 20,000 tonnes of gold, or
three times the holdings of the U.S. Federal Reserve, in jewellery,
bars, and coins.
"Overnight there won't be any reduction in imports, but people
need to be made curious about new products," the RBI official with
direct knowledge said.
"The main conduits of gold imports are banks, forming 50-60
percent of the total imports and supplies to jewellers.
The way banks are suffering from huge non-performing assets,
this is a good product to work on."
The RBI is likely to release next week its final report on issues
related to gold imports and gold loans, the official said.
The RBI is designing products that could replace physical gold demand to
yield similar returns, with easy liquidity and documentation.
Indian banks' total gold loans are worth 1 trillion rupees. Manappuram Finance and Muthoot
Finance, two of the top gold loan financing institutions, together have loan
books of 500 billion rupees, the official said, indicating a large business
opportunity.
"The problem of gold imports can be solved only when the economy
enjoys inflationary and macroeconomic stability," the official added.
Headline inflation has been above 7 percent in the last three years,
prompting savers to invest in gold, stocks, and real estate, which yielded
higher returns compared with bank deposits.
The RBI estimates gold imports to fall by 25 percent in the current
fiscal year ending March to 750 tonnes from a
record of 1,079 tonnes in the previous year due to
a high import duty, a jump in prices, a slowdown in economic growth, and a
month-long jewellers' strike.
India's current account deficit would had been lower by $6 billion at
3.9 percent in 2011-12 instead of 4.2 percent, had imports grown by an
average of 24 percent instead of 39 percent, the RBI said in a recent report.
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