India Forbids Bank Loans for Gold

November 21, 2012 at 09:24

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The Reserve Bank today 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.

“It 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, and units of gold mutual funds,” the 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 used for purposes of financing gold purchase at auctions or speculative holding of stocks and bullion, it said.

However, it said 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 putting pressure on the country’s current account deficit.

In the 2011-12 fiscal year, India’s gold imports stood at $60 billion and the quantum of import was 1,067 tonnes.

In the April-June quarter of the current fiscal, however, gold imports had 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 submitted its draft report in August 2012, suggesting that other than working capital finance, banks are not permitted to finance purchase of gold in any form.