The Reserve Bank of India (RBI) has decided to allow bullion
banks to have one single open position limit for both
gold and forex, albeit after banks get the board approval
in this regard. Till recently, the RBI treated bullion
banks limits in both gold and forex separately.
its circular on sale of gold / silver / platinum dated
7 October 2002, sent to all banks authorised to import
these metals, the RBI said: [Bullion] banks need
to have a single open position limit for both gold and
foreign exchange. Banks may operate within the aggregate
of the open position limits for foreign exchange and gold
already approved by [the RBI]. In case there is a need
for enhancement in the common open position limit, banks
may approach the department for approval of such enhanced
limit. In terms of our extant instructions, the open position
limit would carry 100-per cent risk weight.
per the RBIs earlier circular dated 4 March 1998,
these banks were advised to lay down, with the approval
of their boards, prudential limits on taking open position
in gold and also to obtain the specific approval of the
RBI for such limits. The latest circular, thus, removes
this requirement and considers the open position in both
gold and foreign exchange as one, giving clear indication
that gold will now be treated similar to foreign currencies.
latest move will have wider implications on the use and
treatment of the precious yellow metal in India. The move
is expected to see the emergence of trading in gold, both
physical and gold certificates (paper gold as it is commonly
known), not permitted currently. And gold would then be
traded as forex is traded.
this is the first important step that finally infuses
life in the RBIs relatively passive gold policy
and takes it further to permit forward trading in gold
which is expected to be allowed by the end of October
2002. An indication to this possible move was the RBIs
mention of the Forward Contracts (Regulation) Act, 1952,
in the latest relaxed gold trading norms. Under the new
norms, banks can fix the price of the gold sold within
11 days against the five days earlier.