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MMTC in focus as SBI slinks out of bullion market

Freny Patel / Suresh Menon

Mineral and Metals Trading Corporation (MMTC) is cornering the State Bank of India's (SBI) share in the Ahmedabad bullion market, with the country's largest commercial bank slowing down its gold operations on the backdrop of the bullion scam where the bank has an exposure of Rs 410 million.

SBI had two major customers -- Gitanjali and K L Chokshi. With K L Chokshi absconding and the Gitanjali becoming a defaulter to the tune of Rs 100 million, SBI's dominance in the Ahmedabad market has been cornered by MMTC. However, Allahabad Bank, Standard Chartered Bank and Bank of India are continuing with their operations.

SBI claims not to have frozen its operations as it sits on 28,000 ten-tola bars worth $ 28 million. The bank said that it has only stopped extending credit facilities to bullion traders and has decided to deliver bullion only after the payment is realised.

Madhav M Mehta, SBI's chief general manager in Ahmedabad, said: "To safeguard ourselves against the incidence of fraud, we have stopped giving delivery of bullion against bankers' cheques or pay orders. We have now decided to give delivery only after realisation of these instruments."

He, however, argued that SBI had always chosen not to entertain other bullion accounts and at this point of time is unable to find new customers.

International bullion suppliers, wary on the high lease rates (this is the holding cost for the supplier), had asked some of the bullion banks to pick up the gold from banks holding a large quantity of gold.

However, as per the Reserve Bank of India (RBI) norms, this is not permitted. It is thus understood from banking sources that SBI has opted to transfer a portion of its access stock to its other centres down South, including Madras.

Meanwhile, the bullion banks are operating in a different environment altogether where there are a number of buyers for the gold. In view of the increase in the operational load in Ahmedabad, banks are putting in place better procedures and systems. Many have decided against the acceptance of high denomination cheques, limiting the amount of each cheque to Rs 10 million. The banks are also not willing to accept any cheque issued by any cooperative bank.

Said one affected banker: "A trader is a trader, with no assets. Taking cue from the disappearance of K L Chokshi, and the pressure that we have experienced from the trade, we are putting in place better systems and procedures, as we will now be dealing with more than two customers."

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