Banks hit pay dirt

Banks seem to have hit pay dirt in spiralling gold prices. With the yellow metal prices climbing unprecedented heights, banks have started offering it as a good investment option to customers.

Apart from selling insurance products and mutual funds, banks now see additional source of income in gold sale.

The latest to join the bandwagon is Indian Overseas Bank which expects to sell gold coins of up to 50 grams from April. Anyone can buy gold coins and use it as an investment option and subsequently sell them.

T S Narayanasami, chairman and managing director of the bank, told Business Standard that the bank was exploring ways to increase its fee-based income, apart from selling insurance and mutual fund products.

A senior manager of a public sector bank says that the reason for investing in gold is the better returns it offers, compared to those offered by fixed deposits.

While ICICI Bank had launched gold coin sales over the counter at the end of 2002, it has taken close to three years for other banks to find this as a potential segment with rising gold prices. Moreover, customers find buying coins from banks more reliable as they are hallmarked.

Since October, three banks "� Corporation Bank, HDFC Bank and IndusInd Bank "� have launched the sale of gold coins to customers. Gold coins are being imported from Switzerland and have a 99.9 per cent fineness.

HDFC Bank is offering gold bars instead of gold coins, weighing between 5 gm and 5 kg for sale, to bullion trading and jewellery community. These banks are also considering buy-back option to make the deal more attractive.

State Bank of India, IndusInd Bank as well as HDFC Bank also deal in bullion trading for wholesale merchants.

A senior manager of a bank, which has kept off the new fad, cautions saying that banks will have a good time as long as gold prices move upwards but the option could prove counter-productive if the yellow metal prices fall.