Default jolts bullion market
Dibeyendu Ganguly
Economic Times
20 March 2001
Even as the furore created by the run on Madavpura Bank is dying down, another payments crisis has gripped the Ahmedabad markets, this time caused by the default of leading gold dealer K Lal. The dealer, who has declared bankruptcy and is absconding, owes over Rs 50 crore to various banks and gold merchants. When contacted, RBI regional director V Das declined to name the banks involved. He said: "We have just received intimation in this regard and it is still too early to make any comments." However, players in the bullion market say PSU banks -- such as Bank of India, Punjab National Bank and SBI -- have extended loans to Lal in the past. Bank of India’s exposure is estimated to be the highest at Rs 20 crore.
Also affected is gold merchant Arvindbhai Choksi, who is reported to have made a payment just prior to the default and never received delivery. Lal has dominated the Ahmedabad bullion markets for over a year, undercutting other merchants by selling gold biscuits at a price that was around Rs 600 lower than the bank selling price. Explains a gold merchant: "He would ask his select buyers to make a draft for an amount that was Rs 400 more than the bank price and then he would return Rs 1,000 in cash. His books showed a profit, which is why the banks continued to finance him.
But he was actually incurring massive losses." Multinational banks like HSBC had stopped dealing in the Ahmedabad bullion market mainly on account of Lal. Says a senior HSBC executive: "Now that he has exited, we expect some normalcy to return to the markets. We have already started receiving enquiries." The Manek Chowk markets remained closed on Monday due to the communal flare-up which occurred on Sunday evening. Gold merchants are now optimistic of resuming business later this week. But the crisis of confidence is expected to linger for some time
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