January 2013

The Reserve Bank of India, in its notification released on 19 November 2012 directed banks not to provide loans to its customers for purchase of all types of gold, which includes primary gold, jewellery, bullion, gold coins, units of Gold Exchange Traded Funds (ETF) and units of gold mutual funds. The order was directed for discouraging people from getting involved in speculative activities. The notification from the Reserve Bank of India also directed the banks not to grant advances against gold bullion to traders or dealers, as such advances would be utilised with the purpose of offering finance for gold purchase at auctions and speculative holding of stocks and bullion. This notification allowed the banks to provide finances to the jewelers for their general working capital requirements.

The decision of RBI came up in response to the suggestion of the working Group constituted after the announcement if the Monetary Policy Statement of April 2012. The working group suggested that the banks are not permitted to finance purchase of any type of gold other than the working capital. This decision of RBI came up in response to the significant growth in the imports of the gold in past few years that has created pressure on the current account deficit. The Gold imports of India in 2011-12 stood up at 60 billion dollar.

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