Reserve Bank of India (RBI) has permitted banks to resume lending against gold to jewellers. The RBI has also lifted the ban on imports of gold coins and medallions.
Reserve Bank of India (RBI) has permitted banks to resume lending against gold to jewellers. The RBI has also lifted the ban on imports of gold coins and medallions.
In a notification issued on Wednesday, the RBI said: “Nominated banks are now permitted to import gold on consignment basis. All sale of gold domestically will, however, be against upfront payments. Banks are free to grant gold metal loans.”
Earlier, banks used to get gold on loan based on letters of credit along with payment of interest. However, on August 14, 2013, the RBI issued a circular stating supply of gold in any form to domestic users, other than against full payment upfront, will not be permitted. This caused hardships to jewellers as the new provisions raised the cost of working capital.
"These are important clarifications in the right direction following removal of 80:20 import restriction and definitely positive for the industry, restoring previous position. It is the right time to look at all aspects of gold policy with a longer term perspective, going beyond just import policy and incremental changes,” said Somasundaram PR, Managing Director, India, World Gold Council .
“The focus of government must be on making gold a smoothly fungible asset in the hands of the millions of households," he added.
“From the controlled perspective, the worst seems to be behind for the industry. The re-introduction of gold loan is extremely beneficial and consumers stand to gain,” said Vijay Jain, CEO at Orra.
The RBI however, has not permitted banks to sell gold coins across the counter. The notification said: “Import of gold coins and medallions will no longer be prohibited, pending further review, the restrictions on banks in selling gold coins and medallions are not being removed.”
RBI also clarified, that the obligation to export under the 20:80 scheme will continue to apply in respect of unutilised gold imported before November 28, 2014, i.e., the date of abolition of the 20:80 scheme.
On November 28, the RBI had scrapped the 20:80 scheme for gold imports, which required 20% of the imported gold to be exported. The scheme, which required importers to export 20% was introduced last year to calm the bulging current account deficit (CAD).
Gold imports have surged in recent months and according to World Gold Council estimates, 850-900 tonnes of gold have been imported during the current fiscal. But, there are also concerns over rising smuggling activities, which is projected to have brought in 200 tonnes.
A lower CAD estimate for the full year has prompted the government and the RBI to consider rolling back curbs.
The RBI also said, the premier trading houses could now import gold on drawing point basis as per entitlement without any end use restrictions.
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