(Corrects first paragraph to clarify only coins weighing over
50 grams affected)
* RBI extends gold lending curbs to rural regional banks
* Government measures may be self-defeating -bullion broker
* Finance minister mum on further measures
By Siddesh Mayenkar
MUMBAI, June 25 (Reuters) - India's central bank told rural
regional banks on Tuesday they could no longer provide loans
against gold jewellery and coins weighing over 50 grams - the
latest move to discourage gold buying as the government seeks to
reduce a record current account deficit.
Gold imports into India, the world's biggest gold buyer, hit
a record 162 tonnes in May as global prices tumbled and buyers
stocked up. Rural communities are particularly hungry for gold
as an investment, given a lack of banking facilities outside
Since May, the government has hiked the import duty on gold
to 8 percent, and the Reserve Bank of India has introduced
constraints that force Indians to use cash to buy gold, with
purchases mostly limited to jewellery.
Rural areas account for 60 percent of demand for gold, which
is India's second-biggest import cost after crude oil.
The new rule for rural banks had already applied to other
banks. The central bank also asked banks to restrict lending
against units of gold exchange-traded funds (ETFs).
Indians, whose obsession with gold is legendary, present
gold as a gift at weddings and festivals as well as using it as
an investment and as collateral.
Analysts say addressing inflation and low real interest
rates would have more of an impact on the current account
deficit than curbs and duty hikes on gold.
"These measures might be seen as rather self-defeating,"
Ross Norman, chief executive of bullion broker Sharps Pixley,
"It's almost as if the finance ministry is waging war on the
gold sector, which would suggest that they feel they have lost
control of the economy to some extent. In that environment, you
would want to own gold more than ever," he added.
MORE TO COME?
Gold imports have slowed to about $36 million a day from
$135 million before the curbs, Finance Minister P. Chidambaram
said last week.
The government's battle has won some support from industry.
Financial services company Reliance Capital has halted sales of
its gold-backed funds, and the leading jewellers' body urging
members to halt sales of gold bars and coins.
But with domestic prices already back near levels before the
rise in the duty, concerns are growing that demand could revive,
particularly as a bountiful monsoon starts to raise hopes of
increased incomes for farmers and India's large rural community.
Domestic gold futures, tracking global prices, are
trading around 26,735 rupees per 10 grams, not far from the
contract low of 25,270 rupees on April 16 which triggered the
demand surge that so rattled the government.
"International prices of gold have fallen sharply. This time
around, the government could be in alert mode to avert the huge
demand we saw in April," said Gnanasekar Thiagarajan, director
with Commtrendz Research.
"More measures are possible (in gold) till the rupee gets
into a comfort zone. And apart from gold, no other imported item
which is essential can be targeted as they will lead to further
inflationary pressures," Thiagarajan said.
Asked on Tuesday after the central bank's latest moves if
more measures were expected, Chidambaram said "Let's see." An
official of the central bank could not immediately be reached
for a comment.
($1 = 59.7775 Indian rupees)
(Additional reporting by Suvashree Dey Choudhury in MUMBAI;
Manoj Kumar in NEW DELHI and Jan Harvey in LONDON; Editing by Jo
Winterbottom and Jane Baird)