India's Reliance Capital suspends gold sales
India's rattled bullion industry is concerned that the decision is just the beginning of a trend with other companies expected to follow suit.
Posted: Friday , 21 Jun 2013
MUMBAI (MINEWEB) - -
Are the curtains set to come down on the sale of gold in India from major institutions? In the first of its kind response to the ongoing gold import imbroglio in India, Reliance Capital has suspended sale of physical gold and all gold related investment products.
In a major blow to the investment community, the company has also decided to suspend its gold financing business as well as stop the supply of gold coins for sale through India Post.
The fact that more companies are expected to follow suit with similar measures given India's rising gold imports and widening current account deficit, has brought about widespread consternation among big bullion houses.
"Reliance Capital is the first casualty, to suspend gold sales across all its businesses. Many companies that lend against gold are in a quandary, since the government has been bearing down on practically all companies that deal with gold. Several more companies will be forced to join in,'' said Sashi Mohanty, bullion dealer at a nationalised bank.
Atul Tripathi, analyst with a broking house said, ``The government is not only intent on curbing gold imports it has also been focussing on companies that sell the precious metal. It has consistently been imposing measures to curb the flow of household savings into idle assets like gold and has asked companies and banks to channel savings towards financial market assets,'' he said.
Reliance Capital's gold savings fund has assets under management of $382 million (Rs 22 billion). Besides suspension of gold sales, new subscriptions of its gold savings fund have also been put on hold, Reliance Capital said, though existing investors will not be affected by the decision.
Reliance Capital's Commercial Finance Division has also decided to suspend financing against gold as a security. This leaves the door open for other non banking financial companies to follow suit.
"With the company saying the move is aimed at supporting the government's efforts to curb gold imports, other bullion houses will also have to fall in line to show that they support the government in its measure. One cannot outright act against the government's professed declaration to stop selling gold,'' said a senior official at a gold loan company. The official said some tightening measures were also discussed at his company, and that an announcement on the same was expected shortly.
Sam Ghosh, Chief Executive Officer, Reliance Capital, has expressed hope that all stakeholders across business, trade and industry ``will act in a responsible manner to minimise gold imports'', which has adversely impacted the current account deficit situation.
India is the world's biggest importer of gold. The precious metal has turned out to be the biggest drain on precious foreign reserves after crude oil.