RBI bans loans to buy gold

The Reserve Bank of India (RBI) on Monday notified a total ban on banks from advancing any loans to its customers for purchasing gold in any form, which includes primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds ( ETF) and units of gold mutual funds. 

 

In its October 30 policy meet, the central bank had announced this decision. However, the banking regulator said that banks are allowed to give loans for "genuine working capital requirements to jewelers". 

The notification was issued after it was found that there was a significant rise in the import of gold into India in recent years. The step by the central bank came on concerns that direct bank financing for the purchase of gold in any form — that is bullion, primary gold, jewellery , gold coin, etc — could lead to fuelling of demand for gold in the country. 

Over the last one year, despite a 10% rise in the price of gold in India, the demand for the yellow metal during the July-September quarter was up 27% on an annual basis, data from World Gold Council showed. 

Since India remains one of the biggest importers as well as consumer of gold in the world, the surge in gold imports in turn has been putting pressure on the country's trade balance. 

Primarily this is the reason for the government's recent push to curb gold demand and import, the decision by RBI is a direct fallout of the government's decision, market players said.