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It looks like curtains have come down for sovereign gold bonds (SGB) with the Finance Ministry being non-committal on the issuance of the first tranche for the paper gold during the current fiscal.
“This is a very costly means of borrowing and the economic rationale does not permit this as of now,” an official said. The second half borrowing calendar has no mention of SGB.
This remark has been made at a time when the latest redeemed tranche (SGB 2016-17 Series III - Issue date November 17, 2016) gave a whopping gain of 159 per cent at maturity on November 16.
According to a notification from the RBI issued on November 8, the redemption price was set at ₹7,788 per unit. This means that those who purchased this bond at the original issue price of ₹3,007 per gm in 2016 will realise a profit of ₹4,781 per gram upon redemption. “It is not a social security scheme. Any decision on fresh issuance will be based on the assumption that it should not just benefit the customer, but the government as well,” the official maintained.
Expensive tool
The last tranche of SGB (FY 2023-24 Series IV) was issued on February 21. The aggregate sum raised during 2023-24 amounted to ₹27,031 crore (44.34 tonnes). Since the inception of the SGB scheme in November 2015, a total of ₹72,274 crore (146.96 tonnes) has been raised through 67 tranches.
Officials also said that because of it being a highly expensive tool, the number of issues has been coming down. In FY21, there were 12 issuances, which came down to 4 in FY24. There has not been a single issue this fiscal so far.
The secondary market had a sense of there being no decision on the fresh tranche and this was reflected in the very high demand for these bonds in this segment during the last couple of months. SGBs are traded on the RBI’s retail direct online portal. Trading in SGBs rose in August, with the traded volume at ₹53 lakh (as on August 26) against ₹15 lakh for the previous month (as on July 29) and ₹1 lakh in June (as on June 30, 2024), per data compiled by ARWL from the portal.
Key factor
The fate of SGB seems to have been sealed when the government lowered import duty on gold to 6 per cent from 15 per cent, making physical gold purchases more attractive than investments in SGBs.
At the same time, the second-year issuance of SGBs is nearing redemption, and the expectation is that the government will have to bear higher outgo as gold prices have almost doubled in the last 8 years.
In fact, the RBI has already announced premature redemption of 30 tranches (issued between May 2017 and March 2020) to take place between October 1 and March 31, next year.
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