After putting curbs on non-banking finance companies (NBFCs) lending against gold, the Reserve Bank of India on Tuesday banned banks from lending for purchase of gold by jewellers.
"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," the RBI said in its half-year review of the monetary policy. The RBI has been concerned over banks' exposure to gold finance companies and has taken steps to curb it.
Earlier this year, the central bank asked banks to reduce their exposure to NBFCs giving loans against gold, as it was concerned by the significant rise in gold imports in recent years. The RBI set up a working group to suggest ways to deal with the rising imports of gold.
The central bank said that direct bank financing for purchase of gold in any form - bullion or primary gold, jewellery, gold coin - could lead to fuelling of demand for gold for speculative purposes.
RBI governor D Subbarao said this step is more of a reiteration of an old policy and banks should not finance gold purchases unless it is a working capital need for a jeweller.
In March, the RBI has restricted NBFCs from lending against bullion.
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