Borrow Less Against Gold

Banks have been barred from disbursing loans against gold coins weighing more than 50 gram
Team Money Today        Print Edition: June 2013

Banks have been barred from disbursing loans against gold coins weighing more than 50 gram. The announcement was made by the Reserve Bank of India (RBI) in its monetary policy 2013-14 released in the first week of May 2013.

"While there may not be any objection to grant of advances against specially minted gold coins sold by banks, there is risk that some of these coins would be weighing much more, thereby circumventing the guidelines regarding restrictions on grant of advance against gold bullion," the RBI said.

Banks are allowed to offer loan against gold ornaments and other jewellery and specially-minted gold coins sold by banks. However, they cannot lend for purchase of gold in any form.

Banking analysts say that banks have been giving gold loans in the small-ticket category against jewellery. So, the 50 gram limit will not be a hindrance.

"The move is aimed at restricting borrowing from banks to fund speculative investments in gold. So, the business of disbursing loans against jewellery is not likely to be affected," says Vaibhav Agrawal, vice president, research, banking, Angel Broking.

The RBI will issue detailed guidelines on loans against gold coins by the end of May 2013.

India's gold and silver imports increased sharply by 138% in April 2013 on a year-on-year basis as investors tried to benefit from lower prices. Gold prices have declined around 18% from Rs 32,400 per 10 gram on 26 November 2012. On 16 May 2013, the yellow metal was trading at Rs 26,203 per 10 gram.

The country's trade deficit rose to $17.8 billion in April 2013, up by 72% from the previous month, due to increased gold and silver imports. The RBI has restricted gold imports on a consignment basis by banks only to meet the requirement for jewellery exports.

The RBI has also asked banks to ensure that pricing of loans is realistic and related to the risk profile of borrowers. Wide variations have been reported in interest charged to retail borrowers by banks in loans sanctioned on the same day.

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