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Rising gold price boosts Reserve Bank’s foreign exchange reserves

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Gold


The Reserve Bank of India’s (RBI’s) strategy to add gold to forex reserves has started yielding fruits. The rising price of the precious metal has helped the central bank increase overall forex reserves despite currency reserves not rising, and sometimes even falling.


According to the RBI’s forex reserves data, put out every week, its foreign currency reserves in end-June was $400 billion. On August 2, it fell marginally to $399 billion, according to data released on Friday.



In the same period, however, the gold reserves increased $2.2 billion to a total of $25.16 billion.


Total forex reserves, including all assets, were $427.68 billion in June-end. It increased by only $1.27 billion as of August 2.


Hence, increase in gold reserves as kept the total reserves growing.


This is an important because earlier, the RBI was reluctant to add gold to its reserves as part of policy.


In November 2009, it had bought 200 tonnes of the metal from the International Monetary Fund for $1,032 per ounce. After that, it was only in March 2018 that it bought 2.4 tonnes.


Since then, the RBI has bought 60 tonnes of gold, taking its total holding to 618.2 tonnes.


In the same period the foreign currency reserves have remained more or less the same but gold reserves have increased almost 20 per cent, thanks to increase in stock and also price of the metal.


Gold price is marked to market as per formula once a month.


Sources in the sector said the decision to add gold to forex reserves was strategic because most central banks were using the precious metal as a hedge against changing financial market risk and the dollar.


In 2018, central banks added 651 tonnes to their reserves. In the same period, the RBI added 42 tonnes.


An economist specialising in banking, who did not want to be named, said, “The RBI is also buying gold as part of forex reserves because it is selling sovereign gold bonds on behalf of the government. These bonds have no hedging, but adding gold to reserves is equivalent to hedging that risk.”


Sovereign gold bonds were first issued in November 2015. Since then, the RBI has sold such bonds worth 25.37 tonnes of the precious metal, according to the World Gold Council.


In a recent interview RBI Governor Shaktikanta Das said, “For deployment of (forex) reserves, there is a clear understanding about how much should go into bonds, how much should go into gold assets, and within bonds how much should go into each country. Also, we have set criteria that say there should be safety, liquidity and return on our investments, in that order. Therefore, a certain portion is also held in gold as part of our asset diversification strategy.”

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Sitharaman’s sops for NBFCs may perk up lending, ease liquidity stress

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Illustration by Binay Sinha


To further ease the liquidity stress in the non-banking sector and nudge them to revive their lending activities, Finance Minister (FM) Nirmala Sitharaman on Friday announced a slew of measures for non-banking financial companies (NBFCs) and housing finance companies (HFCs). The government hopes this will result in more credit support for purchase of houses, vehicles, and consumption goods.


The government has provided additional support of Rs 20,000 crore to the stressed housing finance companies from National Housing Bank (NHB). With this, the additional liquidity support for the HFCs from NHB has gone up to Rs 30,000 crore.



In the Union Budget last month, the FM had encouraged public sector banks (PSBs) to buy high-quality pooled assets of NBFCs up to Rs 1 trillion for which the government would provide a one-time six-month partial credit guarantee for the first loss of up to 10 per cent.


The Reserve Bank of India (RBI) had also chipped in by tweaking banks’ bond-holding norms. This will allow banks to borrow an additional Rs 1.34 trillion exclusively for buying such pooled assets and giving loans to NBFCs. The FM on Friday said this partial credit guarantee scheme will be monitored at the highest level in each bank. Through this, it is expected that many of the assets will get quickly pooled and NBFCs will receive the necessary liquidity. “NHB has already settled some of the issues. NBFCs are receiving money from the banks and are moving towards funding,” said Sitharaman.


Sanjaya Gupta, managing director, PNB Housing Finance, said “This will support growth and ease the liquidity crunch. HFCs will now get an additional Rs 20,000 crore from NHB. The initiatives have potential to kick start the real estate sector.”


The government has also permitted NBFCs to use Aadhaar-authenticated bank KYC to avoid repeating the same process when a customer approaches it for credit. This has been a long-standing demand. The necessary changes in the Aadhaar regulations and Prevention of Money Laundering Act rules will be made, the FM said.


“This will streamline the process and also reduce frauds,” said Raman Aggarwal, chairman, Finance Industry Development Council.


The government has also asked PSBs and NBFCs to fast-track their collaboration to provide credit to micro, small and medium enterprises, small traders, self-help groups, and micro finance industry client borrowers.

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PACL Case: Sebi panel invites expression of interest for 28,974 properties

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Sebi


A committee headed by Justice R M Lodha has invited expression of interest (EoI) from prospective buyers for a total of 28,974 properties belonging to PACL Group.


Market regulator Sebi had set up a committee headed by former Chief Justice of India R M Lodha following a Supreme Court order to refund money to investors in the matter of PACL Group.



As per the notice issued by Sebi, the committee has divided the total 28,974 properties belonging to PACL group in four zones — east, west, north and south — with maximum properties being located in the southern zone.


Regarding PACL properties, the apex court’s order dated July 30 observed “we also leave it open to the committee to receive any further offers and to explore them after duly publishing a further notice on the website,” the notice said.


In pursuance of apex court’s order, the committee “invites Expression of Interest from prospective buyers clearly indicating therein, list of properties in each zone, its circle rate, the offer amount and other relevant details,” the Friday notice said.


“The proposal should be for properties in each zone aggregating in value not less than Rs 1,000 crore,” the notice added.


The notice further said that the last date of receipt of proposals is September 9.


PACL, also known as Pearl Group, had raised Rs 60,000 crore from public in the name of agriculture and real estate businesses and was found by Sebi to have collected these funds through illegal collective investment schemes over 18 years.

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Improved market access for domestic retail investors with Aadhaar-based kYC

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Markets, Investors, Indices, Stocks


The government will allow Aadhaar-based KYC for domestic retail investors, and necessary amendments to the rules under the Prevention of Money Laundering Act will be issued.


Announcing a slew of measures to boost the economy, the government said the Depository Receipt Scheme 2014 is expected to be operationalised soon by Sebi. “This will give Indian companies increased access to foreign funds through American Depository Receipt (ADR)/ Global Depository Receipt (GDR),” she said.



In order to improve market access for the domestic retail investors, Aadhaar-based KYC will be permitted for opening of demat account and making investment in mutual funds. In this regard, necessary notification for amendments in PMLA rules would be issued.

Besides, steps would be taken with regard to offshore rupee market.


“To bring offshore rupee market to domestic stock exchanges and permit trading of USD-INR derivatives in GIFT IFSC, Ministry of Finance is working with RBI to introduce this measure shortly,” the government said.

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