A small article today, the headline I tweeted led to some answers. I have Storified them however from a completely lay person perspective, I have some thoughts that would like to share.
Gold purchase on credit card thru banks was begun by ICICI 7-8 years ago, before every bank jumped on the bank wagon, aggressively marketing it, even going as far as recruiting an ‘Institutional Sales’ Team.
Aggressive marketing included – Credit card, EMI, Personal Loan, Loan against Gold etc. Surprisingly the aggression tapered off from 2012 Akshay Trithya for reasons best known to them.
Most of the answers I received from people more clued in than me in terms of financial markets, maths, calculation and referred to – Interest rates mis match, Gold appreciation, Debt trap, RBI Ban, EMI aspect, support to government. All fine and probably correct also. In which case –
1) Why was it introduced 7-8 years ago and allowed by RBI?
2) How much Gold have the banks actually sold and out of which what is the % on credit cards?
3) Banks losing money – seriously, please give me a break. The prices were higher than any
respectable jeweller; all costs factored in.
4) How is this seriously going to help the government?
5) Banks will continue selling on Debit cards, cash, cheque, account transfer?
What I think has happened is that Banks in conjunction with RBI have come to some conclusions:
a) The TG they wanted to attract 67% youth was not really interested in Gold coins, bars – they
had many more options & priorities – electronics, fashion, travel, experiences.
b) Some out of this TG who was interested still bought in cash, account transfer and maybe credit
c) The TG who actually bought were a bit sceptical to buy from Banks.
d) And the TG who speculated, never wanted to take delivery, pay entire amount upfront, get known
by authorities etc etc
e) Most Banks needed to buy Gold upfront, thus maybe leading to dip in reserves. The exposure
constantly increased with gold appreciation and Sales did not keep pace.
f) If the credit card purchase was in any case negligible then why worry.
g)If the negligible credit card purchasers can be turned away to other consumption, makes sense.
Finally, as the MasterCard report says 91-93% of India spend is still CASH!
What do you think?