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Banks asked to lower gold imports

Source : BUSINESS_STANDARD
Last Updated: Fri, May 03, 2013 21:12 hrs
Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh

In a bid to rein in the high domestic demand for gold, and thereby reduce the current account deficit, the Reserve Bank of India (RBI) on Friday proposed to restrict gold imports by banks. It suggested banks could only import bullion on a consignment basis, to meet the genuine need of export of gold jewellery.

The central bank also said non-banking financial companies should not give loans against gold coins weighing more than 50 g per customer.

The detailed guidelines will be finalised before the end of this month, RBI said in a statement.


In the past two years, rising gold imports have been putting pressure on a widening current account deficit (CAD).

"We have taken measures to moderate gold demand for investment and speculation, while demand for consumption goes up when prices fall," RBI governor D Subbarao told reporters.

He added, "According to us, the base level for quantity of imports into the country is about 700 tonnes. However, in the past two years, imports have been 1,000-tonne plus. In 2011-12, it was 1,064 tonnes, in 2012-13 it was 1,015 tonnes."

He, however, did not quantify the likely fall in imports due to the measures announced on Friday. "I would again like to caution that there would not be a dramatic reduction. But we expect some moderation in the quantum of gold imports."

So far, some banks were importing more than the demand and later pushing for higher sales as the imports were on a consignment basis and hence, no funding was required while buying gold.

"Such sales were creating artificial demand for gold and were depriving exporters from getting gold whenever they needed. The measure by RBI will streamline gold supply now," said a veteran bullion analyst.

RBI has also capped the facility of advances against gold coins as collateral at 50 g per customer. This means higher investment in gold coins will not be allowed to be leveraged to generate cash and reinvest it again in other securities.

GOLDEN RULES

& Banks can only import gold for genuine need such as re-exporting
& NBFCs should not give loan for gold coins weighing more than 50 g to a customer
& Move aimed at containing gold import and CAD
& Detailed guidelines by the end of this month

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