The Reserve Bank of India (RBI) should take a fresh look at its ban on banks buying back gold as such a move could improve liquidity in the system, increase supply of the metal, and bring down imports, State Bank of India (SBI) chairman Pratip Chaudhuri said today.
Banks are not allowed to trade on the commodities market, including in gold, as the regulator and the government fear their entry could cause inflation to spike.
"The existing ban is impeding the liquidity of gold holdings in the country," Chaudhuri said, addressing a panel discussion on gold imports at the second day of the national banking summit BANCON here.
"Today all banks sell gold, but the RBI does not allow them to buy back their own gold. Suppose somebody has taken gold from my bank and the same gold, even without opening the seal, comes back to me, I cannot buy it back", he said.
"What could be the underlying thought? Don't you think it is impeding the liquidity of gold holdings in the country," Chaudhuri asked RBI deputy governor Subir Gokarn.
The latter responded that the RBI could revisit the subject once the BKU Rao report on the subject is submitted.
"Obviously, we have to reconcile to the existing regulatory barriers. Once we have feedback on the points, we will come for debate," Gokarn said, adding that the RBI panel would shortly elaborate on ways to deal with the problem arising from high gold imports on the macro-economic front, in the from of balance of payments.
Experts blame rising gold demand, price rise and the resulting surge in imports to hoarding by jewellers and other market participants.
Gokarn called for dematerialisation of gold to arrest rising gold demand, as rising imports of the metal has been blamed for the high current account deficit feared to touch record highs this year.
The current account deficit has been rising on the back of record trade deficits, which in October jumped to a 12-year high of US $21 billion on the back of rising crude oil and gold imports.
Gokarn said that while global gold output has stayed stable at around 4,000 tonne per annum, domestic consumption of the yellow metal has doubled to 1,000 tonne annually since 1999, despite a massive rally in prices.
As gold imports touched a record high last year, pushing up the current account deficit to an historic high of 4.2% of the gross domestic product (GDP) in the year, the RBI unveiled a slew of curbs on gold purchase and financing.
Last fiscal, there was a 39% rise in gold imports. In gross terms, that constituted 80% of the current account deficit, Gokarn said, adding that net gold imports constitute 1.8-2.4% of the GDP.