The banking regulator, Reserve Bank of India, has once again put restrictions on gold based lending undertaken by banks or non-banking finance companies. This time, the apex bank has barred banks from advancing loans to jewelers for the purpose of purchasing gold. Earlier, RBI had put caps on the amount of loan that can be provided by NBFCs against pledged gold.
On the matter, RBI was quoted in its half yearly monetary policy review ""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 utilised for purposes of financing gold purchase at auctions or speculative holding of stocks and bullion." It is reported that the central bank had been concerned about exposure of banking institutions to NBFCs engaged in gold financing and was contemplating ways to control it.
It should be noted that previously RBI had directed banks to lessen their exposure to companies engaged in providing loans against gold because of the alarming rise in gold imports for some recent years. It then formed a working committee to suggest ways on how to reduce gold imports.
RB I is of the view that if banks engage directly in providing loans for buying gold in any form - like gold jewelry, gold coins or bullion - it could accelerate the demand for the yellow metal in the country, not only for gold investment purposes but for speculative purposes as well.