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SBI to revise advisory for gold loans

SBI to revise advisory for gold loans
Highlights

Mumbai (Agencies): Reacting on the falling gold prices, the State Bank of India clarified that there is no...

economicMumbai (Agencies): Reacting on the falling gold prices, the State Bank of India clarified that there is no immediate threat to its gold loan portfolio, but said it will revise its loan-to-value (LTV) ratio from its present level of 70 per cent. The bank has a gold loan portfolio of Rs 35,000 crore. "Generally we keep a 30 per cent limit (of value). Yes, we will have to review that. That (LTV) will be adjusted. We would be revising our advisory for gold loans with the valuations (dropping)," SBI Chairman Pratip Chaudhuri told reporters here. The Chairman of the country's largest lender said the bank's LTV ratio is based on the prices of the peak value. "Gold prices have dropped, but still they are above 70 per cent of the peak value," he said. He added that the bank does not lend against gold in the conventional manner and that its portfolio of Rs 35,000 crore comprises agricultural advances to farmers wherein pledging of gold as a security increases the value of the advances he or she gets. "As of now there is no immediate impact of the drop in prices. Generally our gold is only moral suasion, very seldom we forcibly take away the gold and realise the gold. To that extent, we are not so much dependent on the value of the gold," he said. It should be noted that RBI has for long been expressing concerns over a potential stress because of the rise in gold loans. It also decreased the LTVs for non-banking lenders to 60 per cent because of concentration risks in April 2012. However, the strongly regulated banks are outside this limit. The market reaction came after the banking regulator has reportedly sought LTV details from pure-play gold loan companies over the past week, since prices started falling.
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Marketmen said sustained weakness in overseas markets, where gold plunged over 9 per cent on Monday to its lowest since February 2011, on worries over Chinese growth and possible sell-off by struggling Cyprus's central bank, continued to influence the trading sentiment here. Meanwhile, Bank of America Merrill (BofA) Lynch said on Tuesday that gold may fall to $1,200 per ounce before prices stabilize. Downward pressure on gold prices has been heavily influenced by the current macroeconomic environment, it said. "Fears of disinflation combined with news of potential central bank gold selling have been enough to trigger this dramatic sell-off," BofA analysts said. The bank noted that although central banks have been easing, much of the additional funding has been parked in excess reserves, making gold a somewhat less viable investment proposition.
Govt slashes tariff value of gold, silver
New Delhi (PTI): The government on Tuesday slashed the tariff value of gold and silver to $499 per 10 grams and $890 per kg, respectively, taking into account weak global prices of the precious metals. Tariff value is the base price on which the customs duty is determined to prevent under�invoicing. During the first fortnight of April 2013, the tariff value of gold stood at $521 per ten grams and silver at $920 per kg. According to the notification issued by CBEC, the tariff value of gold and silver has been reduced, while tariff value of RBD palmolein has been raised marginally. The tariff value of RBD palmolein has been increased to $867 per tonne now from the earlier $863 per tonne. The government reduced import tariff value of precious metals following weak price trend in the global market, where gold plunged 9.35 per cent to $1,360.60 an ounce at the New York exchange. The metal has dropped by $200 an ounce, or nearly 13 per cent, in the last two trading days. Tracking weak global cues, gold prices fell in the national capital by Rs 1,160 per ten grams to 21-month low at Rs 26,440.
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