RBI tightens screws on gold funding

Amid a steep fall in gold prices recently and the resultant risks to the system, RBI today further tightened screws on gold loans by banks, restricting them to finance import of the precious metal only for gold jewellery exporters.
The Reserve Bank also restricted the lending against gold coins up to 50 grams only.
"With a view to reducing demand for gold for domestic use, it has been decided to restrict gold import on consignment basis by banks only to meet the genuine needs of exporters of gold jewellery," RBI said in its annual monetary policy review for 2013-14.
The apex also said detailed guidelines on the same will be issued by the end of the month.

It can be noted that in the past two months, as the global economic sentiment improved, gold lost its glitter and lost almost 25 per cent.
The fall was also partly due to the reported move by the central banks of the bankrupt Cyprus and other like Italy and other troubled European nations will have to sell their gold reserves to meet bailout conditions.

But the RBI steps have some domestic context too, which is to wean away the public from investing in gold, which the RBI and the government feel is an unproductive investment apart from their inclination to bring down the widening current account deficit, which is also contributed by the rising gold imports.

In FY12, gold imports constituted nearly 30 per cent of the trade gap at USD 60 billion, however in the last fiscal gold imports have been declining.
The Reserve Bank today also clamped down on lending against gold by limiting to just gold coins weighing under 50 grams per person.