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RBI Prohibits Bank Loans for Gold Purchases
Oct 31, 2012 7:02 AM
By Dilipp S Nag
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RAPAPORT... The Reserve Bank of India (RBI) has banned banks from lending for the purchase of gold to dealers or traders unless the funds are for working capital requirements.
“No advances should be granted by banks against gold bullion to dealers or traders in gold if, in their assessment, such advances are likely to be utilized for purposes of financing gold purchase at auctions or speculative holding of stocks and bullion,” the RBI said in its second quarterly review of monetary policy for fiscal 2012-13 on Tuesday.
The central bank stated that a significant rise in gold imports in recent years is a cause for concern as direct bank financing for purchases of gold in any form – bullion, primary gold, jewelry, gold coin -- could lead to fueling speculative practices.
In March of this year, RBI prohibited non-banking financial companies (NBFCs) from lending against bullion, primary gold and gold coins. It also tightened rules for how NBFCs lend funds, using gold and jewelry as collateral, given the rapid growth of this activity.
RBI created a working group in April to study issues related to gold imports and gold loans by NBFCs in India. The group submitted its draft report in August and pending a decision on its recommendations, RBI proposed that “other than working capital finance, banks are not permitted to finance purchase of gold in any form.”
The central bank will issue detailed guidelines in this regard, it stated.
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Tags:
Banks, Dilipp S Nag, gold, imports, India, NBFCs, purchase, RBI, Reserve Bank of India
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