RBI looks to mobilise idle gold deposits

The Reserve Bank of India (RBI) is mulling ways other than direct curbs on imports of gold to prop up the falling rupee and reduce current account deficit.

The central bank is looking at creating financial instruments that match returns from gold and bringing out gold locked inside safes in the country and putting it to productive use, deputy governor Anand Sinha said on Thursday.

These are some of the alternatives being considered by the K U B Rao committee set up by the RBI to examine the business of gold loans and its links to gold prices, lending practices and how it influences gold imports.

The panel is expected to submit its report by this month-end.

“Gold import has been a substantial part of current account deficit, therefore, it is being looked as to what best can be done. (Curbing) import is one aspect, the other aspect is that gold which is already existing in the country, whether you can bring it out to satisfy the demand, by devising financial instruments which can mimic the return on gold. So several proposals are there. There is a committee that is looking into all the aspects. We will take a decision later,” Sinha said on the sidelines of a seminar on small-scale sector organised by the Indian Chamber of Commerce.

Sinha, however, clarified there were no definite proposals to ban gold coin sales.

RBI has already taken actions to discourage gold-related trade and investments as a volatile stock market and a depressed economy have pushed investors to look increasingly beyond equity and debt.

In April, it asked banks to reduce exposure to any single gold loan NBFC from 10% to 7.5% of their capital funds. Earlier, the government had doubled import duty on gold from 2% to 4%.

In 2011 and 2010, India imported 969 tonne and 958 tonne of gold, respectively, but shipments are likely to drop to 650 tonne this year, following the import duty hike. Signs are already there as data released for April and May for gold and silver showed imports halved in value terms.

Sinha, meanwhile, said there are chances of large corporates going to the banking sector for debt restructuring following the economic downturn.

“The pressure on restructuring has increased because the economy not only in India but worldwide it is under pressure. So obviously restructuring has increased substantially, which would involve big corporates and medium-sized firms also.”