Page 36 - Bullion World Volume 4 Issue 9 September 2024

Bullion World | Volume 4 | Issue 9 | September 2024

In May 2014 Regulator reviewed policy and re-allowed Banks to offer domestic Gold Metal Loan.

Types of Gold Metal Loan also protects against falling customer demand.
Fixed : Gold Metal loan serve as a “Just in time” inventory
• Tenor fixed at the time of draw down of the loan. mechanism.
• Interest rate fixed for the entire period. ¾ Improved efficiency : With the gold on lease
• No foreclosure allowed. approach of holding no inventory, return on capital
will be higher making the company more efficient.
Flexi : ¾ Expansions : Players who usually would buy
• Tenor not fixed, capped to maximum 180 days for inventory for their new showrooms now benefit as
domestic and 270 days for export. they take the gold they need on loan.
• Interest rate can change during the tenor of the loan.
• Interest levied for the number of days the loan is Prerequisite condition:-
outstanding. Qualifying for the GML Facility is based on financial
• Pre-closure is allowed, Part pre-closure is also documents and a thorough evaluation by the Nominated
allowed. Banks credit team.
¾ Gold is disbursed on loan basis for a maximum tenor
Benefits of Gold Metal Loan to Borrower of 180 days in case of Domestic ( Depending upon
¾ Lower Financial expenses : Lease interest rates Trade cycle) and maximum tenor of 270 days in case
are normally in the range of 2 % to 4 % depending of Export or lower as required by the borrower based
upon collateral security provided by borrower. This is on sanctioned gold loan limits for the borrower.
much lower than the 9 to 11 % that banks charge for ¾ Borrower provides required collateral acceptable to
OD/CC/corporate loans. the Bank as a security for the gold loan availed.
¾ Hedging mechanisms : The GML acts as a hedging ¾ The Custom duty is collected on actuals paid for
mechanism against fluctuating gold foreign the consignment from which gold is delivered.
exchange rates. Since rates are determined daily GST is collected upfront on notional value which is
as the gold is used, jewellers do not have the risk of calculated on the previous days London AM Fix /
buying larger amounts of gold and price varying till FBIL reference rate.
it is sold. Here the gold is paid for each day as it is ¾ The stipulated authorised margin band applicable
used. for the GML borrower could range between 115% (
¾ No inventory Risks : If gold is bought, the jewellers Upper band ) to 110% ( Lower band ) , as the case
inventory is valued on the constantly changing may be.
purchase prices. However, in case of gold metal ¾ Borrower has to price both the legs i.e XAU/USD
loan, there is no inventory. Holding no inventory and USD/INR on or before the maturity date and

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