Rupee loses 107 paise on RBI’s mixed signals

Mumbai: The rupee fell by 107 paise (1.8%) to 60.49 on Tuesday, its third-lowest close ever, after RBI maintained the status quo on interest rates and failed to come up with any new measures to support the currency. 

    Contradictory signals from the central bank on the possible duration of its liquidity tightening measures announced earlier this month led to its resolve on the rupee being tested by the foreign exchange market. 
    The stock markets also gave a thumbs down to the policy with a 250-point drop in the sensex. The rupee fell soon after RBI's policy statement said that its liquidity tightening measures would be rolled back in a calibrated manner as stability is restored to the foreign exchange market. The statement surprised markets since the rupee was steadily weakening and inching toward 60 levels despite two rounds of liquidity tightening aimed at buffering the rupee. 
    The fall of rupee below the psychological mark of 60 on Tuesday, the steepest in past three weeks, erased all gains it made since the RBI first announced the measures to defend the rupee on July 15. It is now close to the all-time low of 61.21 hit early this month. 
    In what could be his last monetary policy review, RBI governor D Subbarao, also came out with a strong opposition to a sovereign bond issue and rubbished any need to approach the IMF. RBI firm on stemming rupee slide, says guv 
Mumbai: Taming the exchange rate is RBI's top priority as by its own admission a 10% weakening of the rupee adds over 1.2% to inflation due to higher cost of imports. The two rounds of measures capped bank borrowings from RBI to 0.5% of their deposits. The norms also forced banks to maintain 95% of their cash reserve requirements on a daily basis as against a quarterly average earlier. These short-term measures have pushed up short-term rates above 10% and yields on 10-year bonds have crossed 8%. If these conditions persist till Septemberend, banks stand to make big losses through provisions for depreciation on bonds. 
    Subbarao, however, denied that RBI could be seen to be vacillating on its resolve to stabilize the exchange rate. "We have not used the word temporary very advisedly because RBI does not want to get locked into a timeframe on how long these measures might be necessary. We are determined to control volatility in the exchange rate. There will be consequences for this; there will be pain in the economy. Somebody will have to bear these costs which are inevitable and unavoidable. But we will persist with these measures and implement them consistently in order to achieve the intended results," said Subbarao, whose term as governor ends on September 4, 2013. 
    "In our view the government could increase import duty on select commodities, such as electronic goods, to reduce the import bill," said Samiran Chakraborty, head of regional research, South Asia in a research report. 
    RBI left the policy repo rate at 7.25% and retained cash reserve ratio requirement at 4%. It also cut its growth forecast for the year to 5.5% from 5.7% earlier. Bankers, under pressure from the finance ministry, have committed to hold rates. However, if the rates persist for 6-8 weeks, most will be forced to review their rates.

THE REAL FACE OF A GLITTERING ENIGMA

Reclusive Bullion King Lands in the Taxman's Glare P Kothari, the pioneer of online gold trading, may be paying for his aggressive ways   The walk up to the 20,000-square feet Bullion House, headquarters of Prithviraj Shermal Kothari's RiddiSiddhi Bullion (RSBL), is remarkably unimpressive. A few ramshackle buildings, jewellery shops and sweet-meat stores dot both sides of the road. One has to dodge handcart pullers, twowheelers and an unrelenting stream of people on the street to enter Bullion House. Yet, it is from this street that Kothari, or PK, as he is known in Zaveri Bazaar, has revved up a cumulative turnover of . 1.2 lakh crore over the past six years, earning the title of India's 'bullion king'.  Jignesh Shah, a pioneer in commodity trading in India, has also walked this very street for a lesson or two in bullion trading from Kothari. So has Rajan Mehta, former head of Benchmark Asset Management Company, credited with the launch of India's first gold exchange-traded fund (ETF). "Kothari understands the bullion market better than most suited-booted professionals," Mehta swears.  They are not the only ones to come to this street looking for Kothari. An intimidating force of about 100 income-tax officials also pounded this street as they raided RSBL's offices last month. Speaking to ET on the condition of anonymity, I-T officials claim they have some evidence suggesting that payments have been allegedly made by the company for bogus exports and imports. Kothari rejects the claim and has since written to the I-T department demanding proof of wrongdoing. The I-T officials did seize . 8-10 crore in cash at Kothari's offices. This was part of the collection for the day's gold sales and would have been deposited in the bank the next day, Kothari claims. "I will shut down all my trade if the I-T department finds a single bogus entry in RSBL's accounts," dares Kothari. "We, gold traders, are businessmen and not mafia. We operate within the system." Several Unconfirmed Rumours  This past month, a vicious swirl of unconfirmed rumours has surrounded him — hawala connections, underworld links, even IPL betting. Kothari is a glittering enigma. Till two years ago, he lived in a 625-square feet, 2-bedroom apartment near Tardeo's AC market. His wife still cooks his meals. And he is happy driving a Toyota Etios, a functional . 8-lakh sedan.  Yet, he runs a company with an annual turnover of . 25,000 crore.  Industry leaders credit him with shaping the bullion market and seek him out often for advice. He was in the committee advising MCX and NCDEX, two of the largest commodity futures bourses in India. "Anything to do with bullion trading in the country has shades of Kothari's idea," says a veteran commodity exchange professional. Yet, most industry people refused to go on record for this story, afraid to be linked to him after the raids. What is the real face of India's bullion king?  HUMBLE BEGINNING  Kothari, a Marwari, started off in the early '80s doing simple tasks at his father's 180-square feet shop selling customs notified goods. Situated at Mumbai's Cursetji Shuklaji Street, the shop was among the few licensed agents that sold everything from gold to Pashmina shawls seized by the customs.  Today, he buys truckloads of gold and silver bars and sells them to over 2,200 jewellers through his online spot bullion trading platform, the only such in the country. He set it up in March 2008. Ninety-seven per cent of all trades on the platform result in delivery. The trading platform accounts for around 15% of bullion trading in India. At its peak, RSBL, India's top gold and silver trading company, was selling gold and silver worth . 100 crore daily.  The transparency and aggressive pricing offered by the spot platform has wooed many jewellers who used to buy bullion from conventional channels.  Earlier, people used to call every broker and dealer for quotes locally and deal with them — this lacked transparency and price benchmarks. The rates on the RSBL Spot platform have now become the benchmarks.  "Competitors have failed to sustain if their prices are way too different from the RSBL online platform," says Rajiv Popley, MD of Mumbai-based jewellery retail chain Popley and Sons. Popley has been dealing with RSBL for over two years now, but has never met Kothari personally.  "Traders were exited about RSBL, and I too wanted to try dealing with it. Today, 30-40% of our purchases are through the spot trading platform of RSBL," he says. RSBL earned a net profit of . 85-100 crore in the six years launching its spot platform. Margins in this business are wafer-thin.  "Kothari's pricing game may have made him a market leader, but his aggressive personality has also earned him many foes," says another bullion dealer, who is a close friend of Kothari and also competes with him. "Kothari rubbed many people on the wrong way when he was heading the Bombay Bullion Association (BBA)."  Mohit Khamboj, who was recently elected the president of BBA, has levelled several allegations against Kothari, including illegal possession of a BBA premise by his associate. Kothari responded with a defamation suit. But the matter was resolved last week after Kothari withdrew the suit and Khamboj made way for him in BBA as a director on the board.  Kothari says there is a lack of understanding of the current business model of the bullion trade and the stigma of smuggling in gold and silver, prevalent in the '80s, has stuck to the industry.  "The I-T scrutinised RSBL accounts for several months last year and conducted 100% client verification. But they found nothing untoward, and the recent raids may be due to difference of opinion on interpretation of a few transactions," says Kothari. I-T officials carried out the last raid on RSBL on June 11. They are yet to conclude the investigation. "We are still making inquiries," is all a senior I-T official will say.  "There is no scope of illegal dealings if trades are booked on the online platform of RSBL. Ease of transaction, quick delivery and price transparency has been Kothari's USP," Popley claims.  THE EARLY YEARS  Kothari began his bullion trade in the days when Dawood Ibrahim ruled the roost, selling smuggled gold to small Marwari jewellers. Customs raids were a common feature at Zaveri Bazaar. This pushed the business to a dismal state. But Kothari saw an opportunity and tied up with overseas banks to import gold, which was later sold in India. To attract more dealers and their business, he distributed around 50 VSAT terminals (satellite antennas) to help them track international bullion prices, which also allowed jewellers to price their products better. His understanding of technology and sophisticated market mechanisms — both uncharacteristic for a home-grown bullion trader — have held him in good stead.  His comfort with technology led him to promote Contakt Tech Solution, a mobile value-added service provider. Financial market experts who have worked with Kothari say he has a sharp mind. "He provided crucial support in market-making for our gold ETF," says Mehta.  Only now is Kothari permitting himself the first taste of luxury. Last year, he left his 625-sq ft home for a 2,500-sq ft, 4-bedroom flat at Imperial Twin Towers, the ultra-luxury apartments at Tardeo built by Shapoorji Pallonji. The furniture at his house is modern, but not ostentatious. His wife dislikes chunky jewellery. PK himself is content wearing simple, but crisp white clothes. He occasionally slips on a suit or blazer. Unlike his personal lifestyle, he does nothing to hide his business ambitions. Kothari monitors international bullion prices on his tablet for up to 16 hours a day. Someday, he would like to buy gold mines in Australia, Canada or Africa. "Some such mines — they are also listed companies — have approached RSBL," he claims.  He would also like to build a gold refinery close to Mumbai for making gold coins and bars. His plan is to build one in Navi Mumbai or Panvel. This will make delivery of gold coins and bars to various jewellers in Mumbai and Gujarat easier and less risky, he says.  India's bullion king isn't finished yet. His ambitions will take him higher…if the income-tax investigators will give him a clean chit.  (With inputs from M Padmakshan) RICH PICKINGS: Prithviraj Kothari

Gold jewellery set to cost more on RBI’s import norms

New Delhi: Gold jewellery prices are set to go up with RBI mandating 20% of every lot of imported gold to be set aside for the purpose of exports. With the move likely to generate a shortage of the yellow metal for consumers, jewellers and retailers said this will push up domestic prices as traders will be compelled to export even at low prices to meet the norms. 

    "The government can discourage consumption of gold only by increasing the price of the metal. This is another step in that direction. The increased local premium will be factored in the end price, making it costlier for the consumer," said Jayant Manglik, president, retail distribution, Religare Securities. 
    For retailers, the move has spelt greater discomfort as it will require them to set aside one fifth of every import shipment for exports. According to the policy, 20% of the imported quantity of gold will be retained in customs-bonded warehouses. Fresh imports of gold will be permitted only after 75% of the retained gold is exported. 
    "It is a complicated policy. It is not possible for us to ensure a specified amount of exports with every shipment of gold imported. It will make it very cumbersome for retailers. We would not mind paying a penalty, but this is not a welcome move for the manufacturing industry," said Mehul Choksi, CMD, Gitanjali. 
    According to industry estimates, as against an average of 900 tonnes of consumption of gold in the country annually, exports stand at 60-65 tonnes per year. REINING IN DEMAND 
    According to the RBI policy, 20% of the imported quantity of gold will be retained in the customs bonded warehouses. Fresh imports of gold will be permitted only after 75% of retained gold is exported 
    The move may lead to shortage of the yellow metal for consumers 
at home, leading to hike in prices 
While the RBI move may discourage the consumption of gold to some extent, experts believe it will not be possible to push exports significantly