RBI bans bank loans for purchasing gold

Tags: Banking

Banks can continue to lend against jewellery

If you were thinking of taking a bank loan to buy gold jewellery for the ongoing festive season, you may be in for a rude shock. The banking regulator has asked banks not to give loans for purchasing gold ornaments and coins. The move will also put an end to the tie-ups between jewellers and banks to fund your jewellery purchase.

However banks can continue to lend against jewellery.

The Reserve Bank of India (RBI) in its second quarter review of the monetary policy 2012-13 on Tuesday has asked banks not to finance purchase of gold in any form. Already banks do not lend for purchasing gold bars.

“The significant rise in imports of gold in any form (bullion/primary gold/jewellery/gold coin) could lead to fuelling of demand for speculative purposes…it is proposed to advise banks that other than the working capital finance, they are not permitted to finance purchase of gold in any form,” said RBI in its monetary policy.

The central bank also said that it will be issuing detailed guidelines in this regard separately.

D Sampath, additional general manager (retail), Federal Bank, said “Many banks finance purchasing of gold jewellery or gold coins. Also, many leading jewellers have a tie-up with some banks to offer a loan to buy jewellery from their shop. Such financing cannot be allowed from now on.”

“Already, banks have been banned for giving loans for purchasing bars. Now, loans for purchasing of coins and jewellery have also been added,” added Sampath.

“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. In this context, the significant rise in imports of gold in recent years is a cause for concern as direct bank financing for purchase of gold/jewellery/gold coin could lead to fueling of demand for gold for speculative purposes,” said RBI.

The monetary policy statement of April has announced the constitution of a working group to study issues relating to gold imports and gold loans by non-banking finance companies (NBFCs). The working group submitted its draft report in August.

Vivek Mahajan, head – research, Aditya Birla Money, said, “The move is likely to impact business of banks to some extent, especially the south-based banks like SIB, Federal Bank, IOB and Indian Bank, which are aggressive in gold lending.”

Shyam Srinivasan, MD and CEO, Federal Bank, said, “It is a very progressive move and would help preventing the bubble formation. Else, it could have resulted in bank loans being used to buy an unproductive asset, which again could have been pawned to raise further resources to buy more gold and so on.”


Loan for purchasing gold

Loan for purchasing gold ornaments was a real help for middle income group for procuring gold ornaments for a future requirement like daughter's marriage etc.The loan can be repaid in EMIs from the monthly income.Since gold is purchased at today's rate the borrower can protect himself from future appreciation in gold price.I personally feel that RBI has to make a rethinking on this matter.

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