Gold rush

This refers to ‘Underlying reasons for gold rush’ ( Business Line , Jan 11). The demand for gold arises on account of three requirements. One, it acts as a hedge against inflation and offers good return. Two, this investment provides ready liquidity by way of sale or by way of loan. Three, it is a social custom to go in for gold jewellery during festivals and marriages. Hence, as long as inflation is not tamed, people will continue to invest in gold and demand for gold will prevail. Social custom also cannot be changed. Government and the central bank can only restrict its availability.

Most jewel loans granted under priority sector tag are actually used for non-priority purposes to get the benefit of lower interest rate and easy processing. It is time the RBI restricted banks from lending against gold. For now, the NBFCs could be allowed to continue lending under this category, else, most of them will be out of business.

S. Kalyanasundaram

Chennai

Retailing G-secs

This refers to “G-secs need more retail investors, says RBI’s Khan” ( Business Line , January 10). Government Securities are a ‘neglected’ category, perhaps because they have a captive market as banks have to compulsorily hold huge quantities of G-Sec to comply with Statutory Liquidity Ratio requirements. Both the holding pattern of G-Sec and the ratio of G-Sec in SLR need to change.

The Government should move to a situation where investment in G-Sec is attractive for retail investors as a more secure component in their savings.

Banks also should be given other options to invest their SLR funds (the proposed gold-backed financial instruments could be one such option).

When all these are in a transition phase, the Government should put off the idea of shifting management of public debt from the RBI, at least for a decade.

M.G. Warrier

Thiruvananthapuram

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