MillenniumPost
Business

Banks can give gold loans only to fund jewellery exporters’ import needs

Amid a steep fall in gold prices recently and the resultant risks to the system, RBI on Friday further tightened screws on gold loans by banks, restricting them to finance import of the precious metal only for gold jewellery exporters.

The Reserve Bank also restricted the lending against gold coins up to 50 grams only.

'With a view to reducing demand for gold for domestic use, it has been decided to restrict gold import on consignment basis by banks only to meet the genuine needs of exporters of gold jewellery,' RBI said in its annual monetary policy review for 2013-14.

The apex also said detailed guidelines on the same will be issued by the end of the month.
It can be noted that in the past two months, as the global economic sentiment improved, gold lost its glitter and lost almost 25 per cent.

The fall was also partly due to the reported move by the central banks of the bankrupt Cyprus and other like Italy and other troubled European nations will have to sell their gold reserves to meet bailout conditions.

But the RBI steps have some domestic context too, which is to wean away the public from investing in gold, which the RBI and the government feel is an unproductive investment apart from their inclination to bring down the widening current account deficit, which is also contributed by the rising gold imports.

In FY12, gold imports constituted nearly 30 per cent of the trade gap at $60 billion, however in the last fiscal gold imports have been declining.

The Reserve Bank on Friday also clamped down on lending against gold by limiting to just gold coins weighing under 50 grams per person. 'While there may not be any objection to giving advances against specially minted gold coins sold by banks, there is a risk that some of these coins would be weighing much more, thereby circumventing the RBI norms regarding curbs on advances against gold bullion,' RBI said.

'Accordingly, it has been proposed to restrict the facility of advances against the security of gold coins per customer to gold coins weighing up to 50 grams only,' the Governor said, adding detailed guidelines will be issued by the end of the month.

Explaining the rationale for these measures, the RBI noted that its working group on gold headed by KUB Rao had called for aligning gold import norms with the rest of imports with a view to reducing billion imports by creating a level-playing field between gold imports and other imports.

It can be noted that currently, RBI authorised banks are permitted to import gold on consignment basis; unfixed price basis; and loan basis. Gold is also imported directly by export-oriented units/units in special economic zones in the gems and jewellery sector apart from nominated agencies/banks using letters of credit.

However, the bulk of the gold imported by nominated banks is on consignment basis whereby the nominated banks do not have to fund these stocks.

Also, as per the extant instructions, banks are currently permitted to grant advances against gold ornaments and other jewellery and against specially minted gold coins sold by banks.

The RBI is not happy with this as well and accordingly to do away with these anomaly, it said henceforth, no advances can 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 and units of gold mutual funds.
Next Story
Share it