RBI bans bank loans to buy gold

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 (ETF) and units of gold mutual funds," 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 utilised 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 significant rise in imports of gold in recent years putting pressure on currentaccount deficit. In the 2011-12 fiscal, India's gold imports stood at USD 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 (USD 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, suggested that other than working capital finance, banks are not permitted to finance purchase of gold in any form.