Gold bought from banks hard to resell

In the mad Diwali rush for gold, a sobering fact is that one could be stuck for good with bars and coins that banks sell. They cannot be re-sold to banks. For those who buy them for investment purposes, to make money in a rising market, this is a deterrent.
If these bars and coins must be sold back, for whatever reason, the only easy option is to go to the neighbourhood pawnshop or jeweller, in which case, shortchanging is guaranteed. Another option is to find a non-banking financial company (NBFC) that buys gold.
Few gold buyers know that Reserve Bank of India (RBI) rules allow banks to sell gold, but not buy it back from customers.
"We only sell gold coins for a fee... We are not allowed to trade or take positions in bullion. A customer (who buys from a bank) has to go to the open market if he wants to sell it," V Krishnaswamy, general manger at Indian Overseas Bank, said.
Buying of gold from banks, both government public and private sector entities, reaches a peak during the Diwali season, especially on the occasion of Dhanteras.
Those in gold trade and promotion say the RBI policy creates difficulties for the average buyer. "Customers often end up at the doorstep of small jewellers, who offer lower rates," Ajay Mitra, managing director of the India chapter of the World Gold Council, told Financial Chronicle.
Most banks, including State Bank of India, ICICI Bank and HDFC Bank, have been very aggressively promoting the sale of gold coins and bars.
The NBFCs that do buy or sell gold are few and far between, but they do not buy coins originally sold by others, among them is the Muthoot group of Kerala.
"We only sell gold coins. Since banks do not buy back gold coins, we don't think it is prudent for us to do so. Customers need to tap the open market to sell them," V J Matthew, chief executive officer of the precious metal division of the group, said.
Another south-based NBFC, Mannappuram Finance, also accepts gold from customers, but only those who have bought it from them. This company, too, does not accept gold coins bought from banks.
"We sell gold coins and also buy back at market prices, but only from our customers. Our primary focus is on developing our own gold coin business," V K Joshi, the company's assistant general manager, said.
Most jewellers will give new ornaments in exchange for old ones. But the exchange always takes place at the huge discount on the price of the old jewellery. Tanishq, a big organised jeweller, accepts bars and coins back from customers who have originally bought them from it – but this is done at a discount on the market price.

"In buying back gold coins and bars, the company has a policy of deducting 5 per cent from the market price," said N Vidya Sagar, Tanishq's business manager for the northern region. The company does not buy coins and bars that have been originally bought from other sources.
The price of gold coins differs from bank to bank. A 24-carat, 10 gm gold coin at State Bank of India costs Rs 17,518, inclusive of all taxes; at HDFC Bank it will cost Rs 17,606. The market price of gold as on Monday stood at Rs 15,930 per 10 gm.