Gold finance muthoot finance


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Gold finance muthoot finance

  1. 1. Gold Finance
  2. 2. <ul><li>MUMBAI: Competition among banks to find more customers has brought down the interest rate on loans they give jewellers to buy gold, squeezing profit margins. </li></ul>
  3. 3. <ul><li>After market leader Scotiabank reduced rates to attract more borrowers, several leading state-owned banks have been pushed to follow suit. </li></ul>
  4. 4. <ul><li>However, Rajan Venkatesh, MD, bullion, ScotiaMocatta, a division of Scotiabank, said the bank had not brought down the interest rate on such loans. </li></ul>
  5. 5. <ul><li>&quot;There is no question of reducing the interest rate on gold loans at a time funding costs of reserve requirements have gone up and lease rates are up marginally,&quot; he said. </li></ul>
  6. 6. <ul><li>Against an outright purchase of gold, jewellers find borrowing gold from banks a better alternative since it enables them to hedge against price fluctuation of the metal. </li></ul>
  7. 7. <ul><li>For instance, since they are normally given 180 days to price the loan, they can avail of it when gold prices are high and repay the loan when gold prices dip. </li></ul>
  8. 8. <ul><li>Apart from this, the interest rate on a gold loan works out substantially cheaper than taking a rupee loan to purchase gold outright. For instance, while the gold loan may be available at around 5-6%, a rupee loan comes at 10-12%. </li></ul>
  9. 9. <ul><li>Scotiabank is one of the largest suppliers of gold to domestic jewellers and since its division is a leader in distribution of the physical metal, it is believed to have a better control on costs and at an advantage to competing banks here which import gold from overseas suppliers such as Barclays and Commerzbank on consignment basis. </li></ul>
  10. 10. <ul><li>Indian banks import gold on behalf of local jewellers by paying a lease rate to the overseas suppliers. </li></ul>
  11. 11. <ul><li>Over and above this lease rate, the interest rate they charge the jeweller includes costs incurred on vaulting, staff expense and their own profit margin. </li></ul>
  12. 12. <ul><li>Since the other costs are fixed, the banks have taken a hit on their profit margins. Apart from Scotiabank,  SBI  is a major lender of gold among PSU banks which not only imports gold on consignment basis but also lends the metal garnered through gold deposit schemes. </li></ul>
  13. 13. <ul><li>One PSU banker said his bank had taken a call to reduce the interest rate to 3.5-4.5% from 4-5% for fear of losing customers. </li></ul>
  14. 14. <ul><li>He said that since Scotiabank could sell the gold directly to jewellers, it had an inherent cost advantage over its rivals. </li></ul>
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