Sovereine Golden Bond One of the stupidest government loan programs in the world: Fondsoo Professor

The sovereign Golden Bond (SGB) of India – once praised as an innovative solution to curb gold import – has come under sharp criticism from investor and academic Sanjay Bakshi, popularly known as Fundoo Professor. Bakshi called the schedule ‘one of the stupidest government loan programs in the world’, with reference to the high effective costs of borrowing and poor risk management that he thinks it was baked in his design.

“The effective costs of borrowing appear to be more than 19% per year,” he wrote, and added that “the people who designed this instrument should receive the prize to create one of the stupidest government loan programs in the world.”

Bakshi pulled parallels with the foreign currency convertible bonds (FCCCBs) published by Indian companies in 2008 and noticed how those emennials members members when “the depreciation of the INR and the equity prices” were unable to cover currency reasons.
He emphasized that although default values ​​are unlikely in the case of SGBs, because “the issuer can print money”, the delivery still represents “a good example of total ignorance of basic risk management”.

This was a reaction to a separate post by Ritesh Jain, founder of Pinetree, who explained why the schedule was devised in the first place.

He remembered that in 2015 the trade deficit of India increased because households bought physical gold, putting pressure on the rupid. “Someone in the Ministry of Finance … decided to create a synthetic instrument to saturate the Indian appetite for gold through a structured product that was only supported by the trust of the Indian GOVT, but had no real gold. GOVT was naked on gold.” Bakshi’s post “a user déjet watchers led” Onderet Watchers. Wearing that “now has never covered the gold risk. Effective loan costs of 19% are insane for a sovereign instrument that is intended to reduce import. “

He added that “SGBs have become a free call option for households, a bleeding liability for the state” and warned that “unlike companies in 2008, but taxpayers eat the loss … by not supporting physical metal, GOVT ended naked short. Now Balro’s fiscal costs.”

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