Search the Internet          Tips  Sites: Finance, Investment

Three state-run banks cut gold trade with Gujarat cooperative banks

Three leading state-run banks in Gujarat have stopped accepting cheques from the region's co-operative banks and have cut down on transactions with bullion dealer clients of those banks, bankers said on Tuesday.

"We have stopped accepting pay orders and cheques issued by cooperative banks (on behalf of bullion dealers) and I understand other state-run banks having bullion dealings have adopted the same stance," a senior State Bank of India (SBI) official, who asked not to be named, said.

Some co-operative banks in Gujarat have run into liquidity problems due to volatile share markets. The 30-share Bombay benchmark index has lost nearly 16 per cent since the end of February.

One bank, the Madhavpura Mercantile Cooperative Bank, faced a run on its deposits after panicky depositors began withdrawing money on news that it had lent heavily in capital markets and that these loans had turned sticky due to a steep fall in share prices over the past month.

Other co-operative banks, which lent to Madhavpura ran into a liquidity problem as they have not been able to recover their loans. Madhavpura's board has been suspended by the central bank and an administrator has been appointed.

The Reserve Bank of India (RBI) is investigating Ahmedabad-based Classic Cooperative Bank after payment orders, or banker's drafts, on behalf of bullion dealers to four commercial banks bounced. A report is expected later this week.

The commercial banks were the SBI, Bank of India (BOI), Punjab National Bank and Standard Chartered Bank. The RBI said the banks' exposure totalled a combined Rs 696 million.

SBI, India's largest commercial bank, said on Saturday it has been exposed to a potential loss of Rs 395.7 million ($8.48 million) after it sold bullion to a gold trader whose cheques drawn on Classic Cooperative Bank bounced.

The SBI official said that the bank has decided to reduce its exposure to the bullion market until the RBI report on Classic Cooperative Bank is released.

SBI was the largest supplier of bullion in Ahmedabad and its decision with other state-run banks to lower exposure to gold has created a liquidity problem in the market, traders said.

A Bank of India official, who requested anonymity, said his bank has also stopped accepting banker's drafts issued by co-operative banks on behalf of bullion dealers as a precautionary measure.

"We have cut the exposure as efforts would be now to retrieve the money locked in the trade," the BOI official said.

Bank of India said on Thursday it had suffered a potential loss of Rs 1.3 billion after cheques issued by Madhavpura Mercantile Bank on behalf of a stock broker bounced.

ALSO READ:
The Capital Markets Crisis