The Hindu Business Line : All that glitters is sold

Chennai March 9 "To my cute and extra possessive boyfriend," screams a hoarding. The product: a heart-shaped gold coin. In about a week upto the Valentine's Day this year, ICICI Bank sold about 10,000 coins. This is much larger than the 2,500 coins sold during the same period last year, but there is one more crucial difference. Last year, the bank sold 2.5 gm coins. This year, the bank took a "bold decision" and started vending 5 gm coins too, says Mr Vivek Kanwar, who heads the business at ICICI Bank.

The bank does not want to disclose the value of the merchandise, but provides another set of figures to illustrate the trend. Last year, it sold about 1,800 kg of gold, against about 1,200 kg in the previous year— a growth of 30 per cent. In the current year, it expects to sell more than 3,000 kg, or more than double the quantity sold last year.

Glittering business

There are many banks like ICICI. In about a month comes the D-day for gold traders— the Akshaya Tritheeya. Banks are banking on the faith that gold purchased that day would multiply many times during the year.

"We started this business on April 30 last year and did very well for a beginner," notes Mr S.K. Bandyopadhyay, General Manager, Indian Bank. Indeed, the bank expects to close the books this year with gold sales exceeding 500 kg, valued at about Rs 50 crore. Profits could be about Rs 4 crore.

"Our business model is now acquiring a full shape," Mr Bandyopadhyay told Business Line recently. He says that, after a year's experience, the bank has understood the nuances of the business such as where and how to buy, how much stock up.

Companies are increasingly giving commemorative gold coins, as LIC did recently to celebrate its golden jubilee year.

The Corporation bought 264 kg of gold worth about Rs 25 crore. Indian Bank intends to target this "bulk segment".

While other banks are also doing similar things, more banks are getting into the business. For instance, UCO Bank hopes to be the "first in Eastern India" to sell gold coins. Today, there are 11 banks selling gold coins, compared with four last year.

According to Mr Rajesh Khosla, a bullion analyst and Managing Director, Metloy Trading Services Pvt Ltd, banks in India sold eight tones of gold in calendar 2006 compared with four tones in the previous year. Metloy is the India representative of Pamp, the Swiss gold refiner, from whom most banks buy their gold coins.

Easy Money

Mr Khosla notes that most banks see vending of gold coins as another service to their customers. But banks like this activity because, while the profits may not be much, they are generated without too much effort.

One banker pointed out that to earn a Rs 5 crore profit, a bank would typically need to lend between Rs 400 crore and Rs 500 crore, with all the attendant hassles of finding resources, providing for capital adequacy and dealing with bad debts. Compared with that gold is "easy money".

Will banks then pose a threat to jewellers? No way. Banks' gold business has to be seen in the context of overall imports of gold in India. India imports about 700 tonnes of gold a year. Unlike buyers of gold jewellery, who make their purchases for occasions or decoration, banks' customers are investors looking for another asset class. At least, most of them, for there could be a few romantic girls who might want to gift a heart-shaped gold coin to her extra possessive boyfriend.

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