Gold import rule easing yet to impact availability

Spot delivery premium, after falling to $20 an oz the day after relaxation, has increased to $50

Last week’s relaxation by the Reserve Bank of India in the gold import norms is yet to make an impact, with no big order yet. Banks are still gauging how much to import under the new norms and at which rate to provide that on lease to jewellers.

Also, the new Customs notifications have still to be issued, thus delaying the real implementation. Hence, the spot delivery premium, after falling to $20 an ounce the day after the relaxation, has increased to $50.

An executive of one of the large jewellery firms said gold on lease is yet to happen and negotiations with banks are still on. He expects the lease rates to be settled around three per cent, going by the current negotiations.

The loan market is also unlikely to be very big, as only banks have been allowed to provide loans to jewellers. The loan market a year before, when gold lease was permitted, was much bigger; several listed companies and big jewellers were using only the lease route. Apart from banks, canalising agencies such as MMTC and others which were allowed to import gold were also providing the loan facilities.

In the recent relaxation, the lease route will be available only to the extent of 40-50 per cent of the requirement. An analyst tracking gold said, “Since some large jewellery companies started feeling the pinch and their finance cost was eating away all profits, RBI allowed the loan facility in a limited way, with restrictions.” Shree Ganesh Jewellery House has seen a huge loss and the company’s debt is being restructured by a consortium of banks. Gitanjali Gems had also approached banks with a huge working capital request. Tara Jewels, which declared its annual results on Wednesday, has had a marginal two per cent rise in revenues, while finance cost for the year went up from Rs 43 crore to Rs 57 crore.

This has happened because the business models of listed jewellers shifted from taking gold on lease with minimal interest to buying the yellow metal by making upfront payment, raising their working capital need. Gitanjali,Tara and several other companies have increased their focus on the foreign market and diamond studded jewellery, restricting their retail network expansion. Even Titan, which had a licence for importing 10 tonnes of gold, could not import it as it was bound to export two tonnes to import 10 tonnes under the 80:20 rule brought in last year, said a banking source.