'Spot exchange will solve all our problems'

TRADE TALK: Suresh Hundia, President, Bombay Bullion Association

The Bombay Bullion Association (BBA), with 323 members comprising traders and jewellers of Jhaveri Bazar in Mumbai, controls about 50 per cent of the country's gold trade, selling around 500 kg of the yellow metal each day. Suresh Hundia, president of the BBA, talks to Dilip Kumar Jha on the prospects and the problems of the yellow metal trade.
Excerpts:

What is the status of the BBA's online spot exchange?

We have tied up with Financial Technologies (India) and are now working on the modalities to launch a spot exchange as soon as possible. The spot exchange is the answer to all our problems. The exchange will facilitate buyers and sellers to understand their risks and take positions accordingly. It will also enable traders across the country to book orders and square off their positions at the prevailing prices.

What are the problems faced by the domestic gold traders?

The global trade in gold is monopolised by foreign banks, which are members of the London Bullion Market. They control a fair amount of the domestic gold trade. These banks sell gold when the prices are high, but go slow by pointing out to a lack of proper documentation when the prices decline. This way, they are assured of higher income at the cost of traders. Even if orders are booked by following all the mandatory formalities, the banks do not deliver gold at the desired time.

Besides, we need to deposit a high sum of Rs 25 lakh to open a gold trading account. The paperwork for this is done at the head offices of the respective foreign banks and it takes a lot of time. The Reserve Bank of India guidelines mandate the foreign banks to offer us credit for 180 days. But, the banks are yet to implement the guidelines and instead continue with the credit period of 90 days. This results in customers paying transaction fees four times a year.

How are small traders placed when hallmarking becomes mandatory?

Mandatory hallmarking will drive out unscrupulous traders out of the market and small traders will be forced to upgrade themselves. It will ensure that the quality of gold remains uniform and will bring in transparency in transactions.

Are there any policy impediments to gold import?

Private players were banned from importing gold directly in 1993. However, it is now high time that the government granted import licences to export houses. The government should permit export houses to import the yellow metal and keep a close watch on them. Their licences should be renewed only if they perform satisfactorily.

What is the future of gold exchange-traded funds (ETFs)? Would it hurt physical trading?

Under the present circumstances, gold ETFs are not going to succeed in the country because of a number of factors, including entry and exit load charges, transaction cost and in the absence of physical delivery of the asset. I do not see any reason why traders would be interested in gold ETFs instead of the physical trade, where they can take pride of owning gold and even cashing in on it as and when the need arises.