RBI bans gold purchase-loans by co-op banks

RBI

The Reserve Bank of India (RBI) today directed state and central co-operative banks not to grant loans for purchase of gold in any form in order to check the significant rise in import of the precious metal in recent years.

"In view of the concerns..., it is reiterated that state and central co-operative banks should not grant any advance 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.

Presently, these banks are permitted to grant loans against pledge of gold ornaments, but not permitted to grant any advance for purchase of gold in any form.

They grant loans for various purposes against the security of gold/gold ornaments as part of their lending policy.

The RBI its in second quarter review of monetary policy in October 2012 had said that significant rise in import of gold in recent years was raising concerns and direct financing for purchase of the precious metal could fuel speculative activities.

It was then proposed that other than working capital finance, banks would not be permitted to finance purchase of gold in any form.

Rising gold imports has caused the current account deficit (CAD)-- which occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers -- to touch a record high of 5.4 per cent in July-September quarter.

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