RBI advises banks not to grant loans for purchase of gold in any form

The RBI advised banks not to give loans for purchase of gold in any form, including primary gold, bullion and jewellery. Still, RBI held that banks can provide finance for genuine working capital needs of jewelers.

Objective: To discourage people from indulging in speculative activity. Such advances by the banks are probable to be utilized for purposes of financing gold purchase at auctions or speculative holding of stocks and bullion. This decision by RBI was made in view of significant increase in imports of gold in recent years which has put pressure on CAD (Current Account Deficit).

RBI’s Monetary Policy Statement of April 2012 declared the establishment of a Working Group to analyze issues concerning to gold imports and gold loans by Non-Banking Financial Companies (NBFCs) in India. The  Working Group, submitted its draft report in August 2012, proposed that other than working capital finance, banks should not be allowed to finance purchase of gold in any other form.

Month: Current Affairs - November, 2012