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Pratibha Rathore
Mumbai, May 23: The Reserve Bank of India (RBI) is considering allowing metal-trading facility to bullion exporters as a hedging product. This product will allow exporters to conduct buy-sell transactions in the yellow metal without physical delivery. The transactions will be conducted in the London bullion market with the help of local banks which are members of the bullion market association.
The central bank is expected to allow a maximum six months for hedging the exposure with a facility to roll it over. However, the re-booking facility will not be allowed on cancelled contracts -- similar to the practice followed in the forward-dollar market. As exporters will have to make rupee payments to the bank, the central bank is considering allowing exporters to pay from their export earners foreign currency (EEFC) accounts to banks. At present, exporters are not allowed to make any payments from EEFC accounts.
The Bank of Nova Scotia has already formulated a standardised document to facilitate metal-tradingfacility. Bank of Nova Scotia marketing director Sunil Kashyap said, "Internationally, we are offering this product to customers. We will offer this product to Indian exporters, subject to RBI approval." For this roduct, Nova Scotia will not charge any pre-payment fees.
Metal-trading facility is used worldwide as a popular hedging product. In the first stage, banks which are members of the London Bullion Market Association (LBMA) will identify their clients in the domestic market (domestic jewellery exporters). After identifying clients, their London branch, on behalf of their client in India, will transact in the yellow metal depending on the clients' view on the price movements. According to banking sources, banks on behalf of their client (exporters who are provided with gold loan) will have to seek central bank's approval from trading in the international market. "We will also consider individual request by exporters for hedging their product in the international market," said an RBI official. Underthe metal-trading facility, metal account of the exporter will be with the nominated banks in the form of paper gold. The bank, in turn, will buy or sell the yellow metal in the London bullion market -- depending on the price of gold - and hedge the exporters' physical position.
Under this scheme, no physical delivery of the metal will be undertaken. In case of sale of the metal in the international market, the exporter will receive a premium (which can vary between 3-5 per cent). In case of buying the metal, he will have to pay a premium. At the time of maturity of the product, an exporter will have three options before him: closing the account and selling the stock, taking physical delivery of the stock or rolling it over for another six months. "The metal-trading facility will allow exporters to sell-buy yellow metal on paper without taking any price risk," banking sources said.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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