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The Reserve Bank of India (RBI)’s decision to restrict gold imports by banks has opened a huge revenue opportunity for gold import houses, which are now charging hefty premium to retailers.
In the annual policy review, the central bank had proposed to restrict the import of the yellow metal by banks on a consignment basis and only to meet the genuine need of exporters of gold jewellery. However, the restriction was not applicable to other nominated agencies, as they do not come under RBI’s purview.
At present, banks are permitted to import gold on consignment basis, unfixed price basis and on loan basis but only for the purpose of export and not domestic use.
According to bankers, those agencies allowed to import gold raised their premium multi-fold as supply dried up with banks almost stopped buying gold on consignment basis. The premium of one ounce of gold has gone up to as much as $40 from $1.25-$1.75 over the international gold price since RBI directive, bankers said.
“With banks almost stopping import of gold, there is a huge demand-supply mismatch, which has pushed up the premium. The objective of RBI, which was to discourage gold import, is not met,” said a chairman and managing director of a public sector bank, who did not want to be named.
Banks have sounded their concerns to the central bank and have requested to address the issue.
Gold is also imported directly by export-oriented units and units in Special Economic Zones in the gems and jewellery sector and nominated agencies.
Import of the yellow metal, which is resulting in widening the current account deficit (CAD), has been a huge concern for both the government and the central bank. CAD soared to a record high of 6.7 per cent of gross domestic product in the quarter ended December 2012.
However, Finance Minister P Chidambaram had said the CAD was likely to come down to “more tolerable and acceptable” levels in 2012-13 once the fourth quarter numbers were out. A deficit of 2.5 per cent is seen as a comfort level for RBI.
