RBI may lift embargo on banks lending against gold

The Reserve Bank of India may soon permit banks to resume lending against gold to jewellers. The RBI is also looking at lifting the ban on import of gold coins and medallions. On November 28, the RBI had scrapped the 80:20 scheme for gold imports. The scheme, which required importers to re-export 20 per cent of the gold they import, was introduced last year to bring the current account deficit (CAD) under control. The RBI, which had tightened gold import norms to bring down the current account deficit, is now considering easing them. Gold imports have surged in the recent months and the World Gold Council estimates that 850-900 tons of gold have been imported in the current fiscal. But, there are also concerns over smuggling, which is projected to have brought in 200 tons.
A lower CAD estimate for the full year has prompted the Government and the RBI to consider rolling back curbs.
Revival of loan scheme
According to a senior Government official, the RBI has said that banks can import gold on consignment basis. “This will enable resumption of loan scheme,” he said. Earlier, banks used to get gold on loan basis with letter of credit (LC) along with payment of interest. However, on August 14, 2013, the RBI issued a circular stating supply of gold in any form to the 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.
The RBI also said since Premier/Star Trading Houses are not permitted to give loans, “they may be allowed to import only against full payment basis or against 100 per cent cash margin backed Letter of Credits (LCs).” This provision will be reviewed in the next 5-8 months, it said. The official said that the RBI will issue detailed clarification after getting views from the Government.
The official also confirmed that the RBI has communicated to the Finance Ministry that the issue of resuming imports of gold coin and medallion is “under examination”. However, the central bank will consult the Department of Financial Services before issuing a notification, the official said. There is good demand of such product in the domestic market, especially during festival and marriage seasons.
Source:Hindu business line

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