RBI panel wants tough norms for gold financiers, novel gold-linked products

In a bid to prod Indians to hold less physical gold and thereby reduce gold imports —the key factor in the worsening current account deficit — a Reserve Bank of India (RBI) panel has suggested stricter norms for gold loan companies and innovative dematerialised gold-linked products from banks.

While gold imports rose from $9.1 billion in Q1 FY13 to $10.5 billion in Q2 FY13, gold imports were lower in FY12. In Q1 FY12, gold imports were $16.1 billion and in Q2 FY12, they were $12.9 billion.The group also said there was no need to curb gold loans to individuals, although loans towards bullion, exchange traded gold funds and other forms of gold must not be allowed.

The RBI had constituted a working group in April to study the rapid rise of gold imports and suggest measures to curb the same.

The group submitted its recommendations on Wednesday and invited comments on the same until January 18.

The group suggested the financials of gold-loan companies must be monitored closely and improved.

Noting that their branches, assets and borrowings have grown exponentially, the group has recommended interconnectedness of these companies with the formal financial channel must be reduced. Simultaneously, the panel said, dealings of gold-loan NBFCs with unincorporated bodies must be monitored. Business practices and procedures followed by gold loan companies also needs close monitoring, the report said.

However, the group observed that currently, the gold-loan NBFCs do not pose any risk to the financial system. The group has suggested that banks may continue to provide loans towards jewellery and may also increase retailing of gold coins.

"The working group envisages that it would be difficult to displace the role for banks in gold imports," the report said. Even as the report advocated monitoring of gold loan companies, it said that banks may be encouraged to give out gold loans given the stability and comfort attached with them.

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