Thursday, October 22, 2009

The goldsmith as retail bank

The parable of the evolution of private banking comes about with a story about a goldsmith.  The goldsmith has the strongest safe in town – so people deposit their gold for safe keeping.  People consider the certificates of deposit equivalent to gold.  The goldsmith however lends the gold in the vault for a fee.  That is real gold.  And thus banking acts as a gold multiplier.

These days of course it happens with paper money.  I have never borrowed gold – and nor has anyone in my usual social acquaintance. 

But I am not Indian.

Extracted from the State Bank of India annual report:

Gold Banking

• The Bank has taken several initiatives to undertake bullion business in a big way.
• The number of branches for retail sale of gold coins has increased from 250 in 2008 to 518 in 2009. The Scheme will be extended to cover all important centres of the country in 2009-10 by increasing the number of branches selling gold coins to about 1100. The Bank also undertakes supply of customised gold coins to corporates.
• The Bank has re-launched Gold Deposit Scheme at 50 branches to mobilise gold from domestic market for deployment as metal loans to jewellers.
• The Bank is in the process of setting up a dedicated Bullion branch at Mumbai to undertake bullion business in a focussed manner.


  1. This is also an interesting article:

    Hope the link works.

    Is it me or has the blog had a swish redesign?

  2. Hey, I'm from India and I can tell u that SBI as popularly called is safest and biggest bank in India. Its a symbol of Indian Banking. Despite huge problems, it didn't had an iota of weakness and it went to hire more than 20k people last year. Its a good bank. We in India are also having good insurance company (Life Insurance Company) which should be a role model for those reckless insurance companies that are trading on derivatives and lose public money and claim the bailouts to profit investment banks. I don't know how far my comments are relevant, but I wish to make a point that India has good and conservative financial service providers who does nothing other than providing financial services. I mean they won't operate like a Hedge fund, since RBI, our central bank is strict, we're been able to avoid huge mess that has been created due to inefficient allocation of resources into various activities. Despite this, Indian banks and MFs have a weakness in the form of real estate. I believe this is huge and serious concern. I think some cover up is happening. Lets see, what happens in future?

  3. There is a nice well liked tiny bank in my suburb outside of Boston run by members of prosperous local Indian community. The bank has recently taken to advertising on AM radio that they sell gold coins.