Millennium Post

RBI orders banks not to lend for gold purchases

The Reserve Bank of India (RBI) on Monday directed banks not to give loans for purchase of gold in any form, including primary gold, bullion and jewellery, to dissuade people from indulging in speculative activity.

‘ is advised that no advances should be granted by banks for purchase of gold in any form including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold mutual funds,’ RBI said in a notification.

No advances should be granted by banks against gold bullion to dealers or traders in gold if, in their assessment, such advances are likely to be utilised for purposes of financing gold purchase at auctions or speculative holding of stocks and bullion, it said.

However, the Reserve Bank of India said that banks can provide finance for genuine working capital requirements of jewellers.

The decision was taken in view of the significant rise in imports of gold in recent years, which have put pressure on the current account deficit. In the 2011-12 financial year, India’s gold imports stood at $60 billion and the quantum of imports was 1,067 tonnes.

In the April-June quarter of the current fiscal (2012-13), however, gold imports contracted by 18.4 percent year-on-year to Rs 71,912 crore ($13 billion).

The Monetary Policy Statement of April 2012 announced the constitution of a Working Group to study issues relating to gold imports and gold loans by non-banking financial companies (NBFCs) in India.

The Working Group, which submitted its draft report in August 2012, suggested that other than working capital finance, banks should not be permitted to finance purchase of gold in any form.
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