Banks' gold coin imports a concern

Last Updated: Fri, Jun 29, 2012 04:50 hrs

The Reserve Bank of India (RBI) has expressed concern on banks importing gold coins for retail sales, as households investing in the yellow metal would hit availability of funds for the financial sector.

"Banks' import of gold coins for retail sale to households has been a matter of concern. It has risen from just one per cent of total imports by banks in 2009-10 to 3.8 per cent in 2011-12," RBI stated in the Financial Stability Report.

Stating World Gold Council data, RBI said 23 per cent of all gold imported was for investment in India, adding for households, even its use in jewellery (75 per cent) was aimed at investment. "Diversion of household savings into gold has implications on the availability of funds for the financial sector and, therefore, for growth. The high returns on gold in the recent past could underpin demand, thus putting pressure on the current account deficit on an ongoing basis," the report stated.

In 2011-12, the country imported $45 billion of gold, an increase of three per cent year-on-year (despite a fall of 17 per cent in physical imports from 1,034 tonnes to 854 tonnes). Gold imports account for 10 per cent of total imports.

Banks, MMTC and state trading corporations, among others, are authorised to import gold. "Adverse movements in gold prices can also result in losses on loans portfolios of commercial banks and NBFCs (non-banking financial companies)," RBI said.

Meanwhile, at a banking seminar on Thursday, RBI Deputy Governor K C Chakrabarty said investments in gold should be discouraged in the current scenario, and people should consider the change in their income levels before buying gold.

For banks, selling gold coins was a lucrative proposition, as they earned Rs 100-150 for every gm of gold sold. State Bank of India Chairman Pratip Chaudhuri said, "Banks took to gold coins because customers needed them. Private sector banks were doing brisk business. So, we thought we were losing out on an opportunity and viable business." He added gold was taking away foreign exchange and some people were possibly holding gold as the nearest proposition to holding dollars.

More from Sify: