SBI may get MoF nod to hedge gold overseas
Jayanthi Iyengar
New Delhi 5 May
The State Bank of India (SBI) will be permitted to hedge the gold raised through the gold bond scheme in the international market. Currently, only entities which trade in commodities are permitted to hedge in markets abroad.
According to finance ministry officials, SBI would be considered a commodity trader for the purposes of hedging the gold raised by it through the bond scheme. The government has so far not permitted others to hedge in the international market fearing that it would lead to speculation.
While freed commodity trading is new to the country, hedging in the global markets is of even newer origin. The government allowed companies to hedge in the international market following the recommendations, and acceptance, of the R V Gupta committee on hedging.
Initially, when the Unit Trust India (UTI) had sought government permission to come out with gold-linked units, finance ministry officials had maintained that it was not necessary to hedge in the international market. They felt it was sufficient to do so domestically.
Since then, new guidelines for hedging through international commodity exchanges have been announced by the government. Officials now say that this facility would now also be extended to the SBI.
Hedging in the international market was permitted in order to make Indian producers more efficient, thereby enabling them to compete in the international markets.
Hence, the facility was made available to Indian companies having genuine underlying exposures, through authorised dealers.
According to the norms, hedging on the recognised international exchanges is permitted only through brokerage firms which are clearing members of exchanges. Currently, all standard exchange traded future, options contracts (purchase) are permitted.
The tenure of the contract is usually six months, beyond which the RBI's approval is required. Only crude and petroleum products have been excluded from the scope of this facility.
Since SBI will be trading in gold abroad — exchanging jewellery for pure gold with foreign banks, as also selling and investing some of the proceeds abroad — the hedging facility will permit it to guard against unexpected losses on account of unforeseen price movements.
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