The perception about gold in India has come a long way from the days when its main

function was to merely adorn and act as a status symbol. The emotional investment in the
metal was so huge that parting with it seemed unthinkable. People use gold for coins, jewelry,
ornaments, and many industrial purposes. Now, however, it is becoming clear that an
increasing number of Indians are realizing that gold deserves a place not just in the cupboard
at home or the bank locker, but also in their investment portfolio. Until recently, gold
reserves formed the basis of world monetary systems. Gold plays an important role in
providing the best possible protection against the uctuations of both political and economic
scenario, mainly in India. Investment is a planned method of safely putting ones savings into
different outlets to get a good return. The essential quality of an investment is that it involves
waiting for a reward. Gold as an asset plays a very important role in an investor’s portfolio as
it not only provides stability for returns but also gives an opportunity to maximize the wealth
of the investor .Investors generally buy gold as a way of diversifying risk. Price of gold is
determined by the market force of demand and supply. Gold is a hedging tool against
inflation. Gold is a precious metal that has been valued by people since ancient times. People
use gold for coins, jewelry, ornaments, and many industrial purposes. Until recently, gold
reserves formed the basis of world monetary systems. Gold plays an important role in
providing the best possible protection against the fluctuations of both political and economic
scenario, mainly in Asia, the Middle east countries and also in India.

FACTS ABOUT GOLD

Gold, like no other metal, has a fascinating history and a special place in the world. . Gold is
a very soft metal when it is pure (24 Kt. is pure gold). Gold’s many unique properties have
secured it a central role in history and human development. Gold is a remarkable, rare metal,
with an unparalleled combination of chemical and physical properties. It is the only yellow
metal and bears its name from the Old English word for yellow, ‘geolu’. It is also the only
metal that forms no oxide film on it’s surface in air at normal temperatures, meaning that it
will never rust or tarnish. From the ancient time, gold has been in use as decorative
ornaments for kings and also a currency and standard for global transactions. It has a wrinkle
role in a wide range of electronic devices and medical applications, recently. Even through
gold was mainly used t wear it as an ornament, thus acting as a status symbol in India, the
perception about gold has taken different dimensions, making a long journey from those
days. Increase of belief in gold among the Indians, not only deserves a place in home
cupboard or bank locket, but also in the Indians investment portfolio. Reserve Bank of India
makes changes in policy, according to the gold store in the Indian treasury. In the year 2010,
Gold jewellery and ornaments occupy nearly 75% of the total gold demand in India; the
remaining 25% of Indian demand is accounted for the investment and technology sector.

WHY DO PEOPLE INVEST IN GOLD?

To know this answer, a study has been conducted in Madurai city with a sample of 75
respondents by asking them the factors infl uencing to buy gold. A simple questionnaire has
been prepared which contains factors to motivate them and the risk involved in buying gold.
The respondent has been asked to rank them on their priority. Analysis from the above table
indicates that liquidity is the highest preference followed by appreciation of the value of gold
and for beauty and pride. So the above analysis indicates that investors consider that gold can
be realizable easily into cash.

RISKS ON INVESTING IN GOLD

It is not an essential commodity. People cannot eat gold. Gold investment does not provide
any current income like dividend or rental as in Stocks or real estate where investors can reap
the rewards of their investment without having to sell their asset. Besides when an investor
purchases gold, attention needs to be given to how the gold will be safely stored. Storing gold
coins in one’s house is the equivalent of putting money under one’s mattress: It is not a safe
place to keep it. Some investors use safe deposit boxes (available at some banks) to store
gold. Other investors purchase gold in a manner that does not require taking delivery on the
gold. For instance, a gold exchange traded fund enables the purchase of gold without having
to take possession of gold. So the study identifi ed the risk in investing in gold. The above
table indicates that No Regular return has been given highest score followed by Less
realizable value and High making charges. These things are real concerns, though most
people agree that the advantages outweigh the negatives and they purchase gold anyway.

2.1 Gold “Gold is a chemical element with the symbol Au and an atomic number of 79. Gold
is a dense, soft, shiny metal and the most malleable and ductile metal known”. People took
gold to make jewellery and currency. It is the symbol of wealth, beauty and heritage carrying
memories and cultures. Gold has a place in history regardless of the country of origin.
History states that the gold coins have been minted since around 670 BC when king Gyges of
Turkey minted some gold coins for his personal currency when travelling. The Roman
Legions were apprehensive when Julius Caesar first issued gold coins as payment for their
service. From the past many centuries, Indians have made gold as an integral part of their
lives. Gold is believed as symbol of good luck and prosperity and therefore we can easily find
gold in every Indian life. In Indian culture, women and gold have remained more near to each
other and this tradition is very old and still continuing. Gold is a metal that lures many it
gives security against any financial crisis. Because of its easy liquidity it is also used by
women for adorning themselves. Today earning capacity of the Indian people is increasing
fast which is making it possible for them to buy more and more gold thus pushing the prices
of gold further high level.

2.2 Gold a good investment: Historically, gold played a major role in the economies of many
nations. Although it is no longer a primary form of currency, gold is still a solid, long term
investment and may be a valuable portfolio addition; particularly in a bear market. Gold was
considered a universal currency for hundreds of years. Due to its recognized value worldwide
,a gold standard was used as far back as the Byzantine Empire over 1500 years ago. Until
recently, in fact gold was used as the world reserve currency. Liquidity also refers both to a
business ability to meet its payment obligations, in terms of possessing sufficient liquid
assets, and to such assets themselves. Liquidity is not the first thing most people start to think
of when they invest to the precious metals. However, liquidity is very important primarily
when one buy a precious metal. 2.3 Advantages of gold investment • Liquidity • Holds its
value • Diversification • Universally desired investment • Gold is used as input in products 3.
CHI-SQUARE ANALYSIS In this section Chi-square test is used to test the independence of
two attributes. For the purpose of applying the Chisquare test the factors such as age,
education, marital status, education level, occupation ,annual family income and savings per
annum are compared with the factor namely “Respondents belief that gold investment is a
better investment and would generate a good return”. Demographic Factors Vs Respondents
Belief That Gold Investment Is A Better Investment and Would Generate A Good Return - A
Relationship Analysis Demographic factors, namely, gender, age, marital status, educational
level, occupational status, family annual income and savings per annum are considered with
respondents’ belief that gold investment is a better investment and would generate a good
return.

An investor has numerous investment options to choose, depending on his risk profile and
expectations of returns. As such, different investment options represent a different risk-return
trade off. The low risk investments are those that offer assured, but lower returns, where as
the high risk investments provide the potential to earn greater returns. Hence, an investor’s
risk tolerance plays a vital role in choosing the most suitable investment. Various investment
options are available such as bank deposits, investment on commodities like gold and silver,
post office savings schemes, public provident fund, company fixed deposits and stock market
options like bonds and debentures, mutual funds and equity shares of the various types of
investment options, gold happens to be one of the best options to be included in the portfolio
for diversifications of risk. Gold is always considered as one of the best investment
alternatives available with common Indian investor. Indians consider the investment in gold
as a traditional method of investment. As a world’s top consumer of gold, India accounts for
20% of world gold demand. If we consider the price growth of gold since 2001, it has risen
by as much as 450 percent. As the importance of gold investment is increased due to extreme
unpredictable change in the financial markets, economic uncertainty and fears that national
currencies will lose their value etc, force the investment in gold. It is mainly because gold is
always considered as the best means to hedge against market volatility. As its importance is
increased in the investment arena, now a days gold is measured as an equivalent to
investment opportunities in the mainstream of financial markets. Gold ETF is an open ended
exchange traded funds, listed in the stock exchange, available for trading with an intention of
offering to investors a means of participating in the gold bullion market without the necessity
of taking physical delivery of gold. However, the performance of the scheme may differ from
that of the domestic prices of gold due to the expenses or other related factors. All gold
bullion held in the scheme is an allocated account with the custodian which shall have the
purity of 99.5%. A demat account and registration with the broker (member of NSE/ BSE)
are mandatory for the investors who are willing to invest in Gold ETFs.

The perception about gold in India has come a long way from the days when its main function
was to merely adorn and act as a status symbol. The emotional investment in the metal was so
huge that parting with it seemed unthinkable. Now, however, it is becoming clear that an
increasing number of Indians are realizing that gold deserves a place not just in the cupboard at
home or the bank locker, but also in their investment portfolio.

Gold jewellery represented around 75 per cent of the total Indian gold demand in 2010, the
remainder accounted for by investment and technology. Our macroeconomic forecast to 2020
shows India is poised for …show more content…
This brought the Bretton Woods system to an end and saw the dollar become fiat currency. This
action, referred to as the Nixon shock, created the situation in which the United States dollar
became a reserve currency used by many states. At the same time, many fixed currencies (such
as GBP, for example), also became free floating.

Design of the financial system

Free trade relied on the free convertibility of currencies. Negotiators at the Bretton Woods
conference, fresh from what they perceived as a disastrous experience with floating rates in the
1930s, concluded that major monetary fluctuations could stall the free flow of trade. The new
economic system required an accepted vehicle for investment, trade, and payments. Unlike
national economies, however, the international economy lacks a central government that can
issue currency and manage its use. In the past this problem had been solved through the gold
standard, but the architects of Bretton Woods did not consider this option feasible for the
postwar political economy. Instead, they set up a system of fixed exchange rates managed by a
series of newly created international institutions using the U.S. dollar (which was a gold
standard currency for central banks) as a reserve currency.

GROWTH AND DEVLOPMENT

These are the types of banks operating in today's market:

Commercial banks: This type of banking includes national and state-charted banks, stock
savings banks, and industrial banks. This kind of banking service has provided many services
to the society which includes the basic functions of savings, providing loans, dealing in time
deposits, etc. The reserve requirements of these banks are totally different from the mutual
saving banks.

Mutual savings bank: This type of banks provides some limited type of loans and deals in
savings and other deposits. But recently the modifications have been done and now, these
banks are also providing a huge number of facilities. In these banks, the investment and loan
amount depends on the available customer's deposits. Once, the national level banks started
rolling, the concept of international banking emerged. Actually, the growth in the trade and
commerce, the growth in the exchanges between countries, the multi-national trades, etc.
demanded some kind of international organization to carry out the business smoothly.

So, the following international banks were formed in order to fulfill the demands of the
modern global market:
World Bank (International Bank for Reconstruction and Development): It was founded in
1945 with the view to approve loans to private investors and to the governments of different
countries.

IMF (International Monetary Fund): The bank has been involved in simplifying the process
of debt clearance between the nations. It has also provided valuable suggestions to the
members in the field of international banking.

The European Central Bank (European monetary system): Has been founded in 1998 to
handle the joint monetary policy of those European countries, which have adopted a single
currency.
There are several organizations, which have developed in the recent times and which are
performing some of the orthodox banking operations, but these are not under the supervision
of state or federal banking authorities. These organizations are also serving the society in the
same manner as the traditional banks serve.

Some of these organizations are:

Savings associations

Loan associations

Finance companies

Mortgage companies

Insurance companies

Credit unions

Investment bankers

Credit securities

Brokers and dealers in securities

Financial sector is the set of institutions, instruments, markets. It also includes the legal
and regulatory framework that permit transactions to be made through the extension of
credit. Fundamentally, financial sector development concerns overcoming “costs” incurred in
the financial system. This process of reducing costs of acquiring information,
enforcing contracts, and executing transactions results in the emergence of financial
contracts, intermediaries, and markets. Different types and combinations of information,
transaction, and enforcement costs in conjunction with different regulatory, legal and tax
systems have motivated distinct forms of contracts, intermediaries and markets across
countries in different times.

The five key functions of a financial system in a country are: (i) information production ex
ante about possible investments and capital allocation; (ii) monitoring investments and the
exercise of corporate governance after providing financing; (iii) facilitation of the trading,
diversification, and management of risk; (iv) mobilization and pooling of savings; and (v)
promoting the exchange of goods and services.

PERFOMANCE AND OTHER STASTICAL DATA

The word ‘Performance is derived from the word ‘parfourmen’, which means

‘To do’, ‘to carry out’ or ‘to render’. It refers the act of performing; execution,

accomplishment, fulfillment, etc. In border sense, performance refers to the

accomplishment of a given task measured against preset standards of accuracy, completeness,

cost, and speed. In other words, it refers to the degree to which an achievement is being or
has been accomplished. In the words of Frich Kohlar

“The performance is a general term applied to a part or to all the conducts of activities of an
organization over a period of time often with reference to past or projected cost efficiency,
management responsibility or accountability or the like. Thus, not just the presentation, but
the quality of results achieved refers to the performance. Performance is used to indicate
Firm’s success, conditions, and compliance. Financial performance refers to the act of
performing financial activity. In broader sense, financial performance refers to the degree to
which financial objectives being or has been accomplished. It is the process of measuring the
results of a firm's policies and operations in monetary terms. It is used to measure firm's
overall financial health over a given period of time and can also be used to compare similar
firms across the same industry or to compare industries or sectors in aggregation.

In the last decade the banking industry of India has experienced exponential growth. The
CNX Bank Index1 has grown by more than 1100% in absolute terms, and at a compounded
annual growth rate of over 25% in the period from 2000 – 2010, while the Sensex2 grew at a
compounded annual growth rate of 14%. In the year 2010 the banking sector
contributed16.35% to the GDP of India.3 This calls for an analysis of the performance of
Indian banks. The reforms of 1991 and 1998 have helped improve the performance,
profitability and efficiency of the Indian banking system. Prior studies have shown the
effectiveness of there forms on Indian banks in helping improve total factor productivity,
efficiency and profitability among other things. Much less has been done to examine how the
banking industry of India has fared compared to other countries in recent years. In addition,
there is insufficient published research on the performance of the public and private banks in
the wake of the financial crisis, which is a true litmus test. The purpose of this thesis is to
analyze the growth of the banking\sector of India, starting in the 21st century. The analysis is
conducted in two parts: (1) examination of the performance of private and public banks in
India in the last ten years and (2)comparison of the performance of the Indian banking sector
share price performance to the banking sectors and overall market indices of other developed
and developing countries over the last ten year.

Nationalization led to major structural changes in the banking sector of India. Branch
expansion was accompanied by development of priority sectors of the economy, with credit
being directed towards these sectors contrary to profit motives of the banks. The Credit
Guarantee Corporation of India Ltd. was established for providing guarantees against the risk
of default in payment, which increased the number of loans to smaller borrowers by the
banks. The number of rural bank offices increased from 1,443 branches in 1969 to 19,453
branches in 1981\(Reserve Bank of India 2008a). The amount of credit outstanding increased
from Rs. 1.15 billion in 1969 to Rs. 36 billion in 1981, which accounted for 11.9% of the
total loans to the rural areas (Reserve Bank of India 2008a). RBI was monitoring the
economy by controlling and changing micro factors affecting banks, to prevent banking
failures during crises. In April 1980, there was a second wave of nationalization when an
additional six banks were nationalized. All these banks had deposit liabilities of Rs. 2 billion
or more. The number of public sector banks reached twenty, representing 92% of the deposits
of the banking sector. The government increased the Cash Reserve Ratio (CRR) and the
Statutory Liquidity Ratio (SLR).5 Banks were earning less than the market rate eligible on
CRR balances and yield on government securities was lower than the interest rate paid by the
banks on deposits. The nationalization phase was marked by stringent controls on the banking
industry. As of September 22nd, 1990 the Cash Reserve Ratio was 15.00% and the Statutory
Liquidity Ratio was 38.5% (Reserve Bank of India), combined they amounted to 53.5% of all
demands and liabilities being saved in liquid government securities or as cash with the RBI.
The banks were being used by the government to fund their projects for economic
development. This led the banks to be unprofitable forcing the government\to adopt changes
and thus, came about the reforms of 1991 led by the Narasimham Committee. There are two
main approaches to banking regulation. One endpoint is government ownership of the
banking industry and the other endpoint is free banking system. Barth, Caprio and Levine
(2008) describe the two main approaches as the “Public Interest Approach” and the “Private
Interest View of Regulation”.