More Banks Allowed to Import Gold Bullion to India

Reserve Bank of India adds approves four more banks for gold and silver importing...

INDIA'S central bank, the Reserve Bank of India, has allowed four more banks to import silver and Gold Bullion silver into the country, report's MineWeb's Shivom Seth from Mumbai.

This brings the total number of banks allowed to import bullion to 35 in India. Bankers say the ensuing heavy competition is all set to bring on heavier discounts for consumers.

"Competition creates transparency in the price and could result in lower premiums. Ultimately, the customer gets the benefit, since each bank will try and woo them to their offered price,'' said Prateek Vyas, senior official with bullion importing IndusInd Bank in Mumbai. As if in tandem, silver Spot Prices on the Bombay bullion market jumped by $6.31 to touch $994.55 in the early hours of Tuesday. 

Bank of Maharashtra, Yes Bank, Union Bank and ING Vysya Bank have been included in the list of banks allowed to bring in the precious metals. Silver and Gold Bullion is still tightly regulated in the country with the Reserve Bank nominating certain state run and private sector banks to trade in bullion.

The measure has come as a huge relief to retail buyers who have been awaiting some action from the Reserve Bank. 

"This will result in a major jump in demand from the consuming class. Many buyers have been looking forward to a lower price to get back into the market and this move will spark it off,'' said Suresh Hundia, of the Bombay Bullion Association.

BBA president Prithviraj Kothari said the new bank mandate could help increase purchases of both gold and silver. "Though gold is an all-time favorite, silver imports into the country are set to cross 3500 tonnes in 2011. In 2010, India imported 2800 tonnes of silver,'' he said.

Banks normally charge 15% premium to the market rate. Stating that banks would have to work and cut down on their premiums and not couch it as a discount to the loyal customer, Kothari said the silver market was looking good in the first quarter of 2012.

"We should expect 400-500 tonnes of silver imports in Q1. Last April, India imported 600 tonnes of silver, the biggest ever haul. But November 2011 was particularly destabilising for silver imports. This continued till December, with less liquidity in the market, bringing down overall imports. This year, however, it will be good for silver. In the case of gold, imports would be only 150 tonnes,'' added Kothari.

Though several nominated banks have been trading in Gold Bullion, many have not yet moved completely to silver. Private lender Dhanlaxmi Bank entered the higher denomination silver retailing business on January 10, with the launch of its 'Dhan' silver bars. The silver bars are to be available in tamper-proof laminated pack in weights of 50 and 100 grams at branches across the country.

"The launch of Dhan silver bars has been prompted by the success of the bank's gold retailing business. With this launch, we foresee further traction,'' said Dhanlaxmi Bank, head, gold and silver, Deepak Singh.

The launch of silver retailing marks the second phase of the bank's foray in Silver Bullion business. In July 2011, the bank rolled out its wholesale initiative with the launch of 30 kilo silver bars and silver grains. Singh added, "We see a lot of potential in metals as an asset class. With higher disposable income and high inflation, investment in metals such as silver and gold will allow investors to hedge and diversify their savings and investment portfolio.''

The surge in Silver Prices 10 months ago had led more banks toying with the idea of selling the metal in the local market. Bank of India had then joined the ranks of two lenders – Scotiabank and HDFC Bank – to sell silver bars locally.

At that time, silver, which moves in tandem with gold, had risen by 71% against a 23% increase in gold. The jump in gold following the global recession of 2008 had made silver a cheaper investment option. 

Though Bank of India was selling gold bars outright, offering gold loans to jewellery manufacturers, it decided to step in to silver retailing after a lot of thought. In 2010, the bank's four bullion exchange branches, two in Mumbai and one each in Ahmedabad and Chennai, sold around 11,000 kilo of gold bars to its clients.

In terms of gold, banks contribute 80% of the 800-900 tonnes that India annually imports. The mandate for additional banks will increase purchases and also help banks in boosting their gold lease facility to manufacturers.

"Falling gold imports may be bad for the market, but is considered good for the economy. In the first two quarters, gold imports amounted to $25 billion, according to the World Gold Council. In the September quarter, imports were $11.25 billion and in the last quarter it was just $7 billion. The move to bring on more bankers will also raise the prospect of better competition and help supplies,'' said Kothari.

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