Kotak Mahindra Bank would soon launch gold hedging services, which are in a very nascent stage in India. Gold analysts said most Indian gold jewellery manufacturers now hedge their gold purchases on the Dubai Commodity Exchange, in the absence of widespread availability of such services in India. ICICI Bank is already in the business of gold hedging services.
The analysts said availability of forward cover for gold purchases in India provides a natural domestic hedge. Gold hedging is one of the four gold business lines the private sector bank has decided to start following the Reserve Bank of India (RBI) move to provide bullion business licences.
Apart from forward cover on gold, Kotak Bank will start giving gold loans, selling gold coins and also consignment services on gold, silver and platinum.
Typically, the bank acting as the consignee would buy gold from the supplier based overseas after contracting with the domestic buyer.
The bank’s group head-treasury, Mohan Shenoi said there was no price risk involved in acting as a consignee as once the transaction is complete, the bank would remit the amount to the supplier’s account at a fixed price and foreign exchange rate.
Shenoi said, “The consignment business involves lower margins, but higher volumes. A substantial number of players from the gems and jewellery processing sectors are also looking for financial covers on gold.”
The other players having presence in the gold business include private sector entities such as ICICI Bank, HDFC Bank and IndusInd Bank trading companies such as the Metals and Minerals Trading Corporation of India (MMTC).
The total demand for gold across the globe is around 4,000 tonne, out of which Indian accounts for about 800 tonne.
In September 2005, the Reserve Bank of India (RBI) gave banks the permission to lend gold loans to domestic jewellery manufacturers. Till then, banks were allowed to lend gold only to jewellery exporters.
RBI then had said in a notification that gold loans and other non-funded commitments of banks would have to fall within the ceiling of 25 per cent of tier-I capital for gold exposures.
This ceiling included the loans extended even to jewellery exporters. The central bank in this regard also cautioned banks to ensure end-use of these loans and adhere to the “know-your customer” guidelines.
The analysts said availability of forward cover for gold purchases in India provides a natural domestic hedge. Gold hedging is one of the four gold business lines the private sector bank has decided to start following the Reserve Bank of India (RBI) move to provide bullion business licences.
Apart from forward cover on gold, Kotak Bank will start giving gold loans, selling gold coins and also consignment services on gold, silver and platinum.
Typically, the bank acting as the consignee would buy gold from the supplier based overseas after contracting with the domestic buyer.
The bank’s group head-treasury, Mohan Shenoi said there was no price risk involved in acting as a consignee as once the transaction is complete, the bank would remit the amount to the supplier’s account at a fixed price and foreign exchange rate.
Shenoi said, “The consignment business involves lower margins, but higher volumes. A substantial number of players from the gems and jewellery processing sectors are also looking for financial covers on gold.”
The other players having presence in the gold business include private sector entities such as ICICI Bank, HDFC Bank and IndusInd Bank trading companies such as the Metals and Minerals Trading Corporation of India (MMTC).
The total demand for gold across the globe is around 4,000 tonne, out of which Indian accounts for about 800 tonne.
In September 2005, the Reserve Bank of India (RBI) gave banks the permission to lend gold loans to domestic jewellery manufacturers. Till then, banks were allowed to lend gold only to jewellery exporters.
RBI then had said in a notification that gold loans and other non-funded commitments of banks would have to fall within the ceiling of 25 per cent of tier-I capital for gold exposures.
This ceiling included the loans extended even to jewellery exporters. The central bank in this regard also cautioned banks to ensure end-use of these loans and adhere to the “know-your customer” guidelines.
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