RBI bans lending for purchase of gold in any form

The Reserve Bank of India (RBI) has directed banks not to give loans for purchase of gold in any form, including primary gold, bullion and jewellery or exchange traded funds (ETF) in order to deter excessive speculation in gold.

''No advances should be granted by banks against gold bullion to dealers/traders in gold if, in their assessment, such advances are likely to be utilised for purposes of financing gold purchase at auctions and/or speculative holding of stocks and bullion,'' RBI said in a notification issued today.

The new guidelines have been issued in the context of a significant rise in imports of gold in recent years and concern that direct bank financing for purchase of gold in any form, viz, bullion/primary gold/jewellery/gold coin etc could lead to fuelling of demand for gold.

Accordingly, RBI has advised banks against granting any  loan for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds (ETF) and units of gold mutual funds.

However, banks can provide finance for genuine working capital requirements of jewellers.

India imported 1,067 tonnes of gold worth about $60 billion in the 2011-12 financial year. In the April-June quarter of the current fiscal, however, gold imports had contracted by 18.4 per cent year-on-year to $13 billion (Rs71,912 crore) amidst rising international prices of the precious metal.