Loans to buy Gold is now banned by RBI

                     A recent notification from the Reserve Bank of India (RBI) issued a complete ban on all the banks of India from granting any loans to its customers for buying gold in any form possible. This ban includes primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold mutual funds.

                      The Central Bank declared this after their October 30 Policy meet on Monday only. The banking regulator has given a sigh of relief to the various jewelers, as the banks of India are allowed to give loans for “genuine working capital requirements to jewelers”.

                         In recent years there was a very high growth in the Import of gold into India. The rise was quite significant in deed. This notification was issued after considering this high rise only. The central bank is very much concerned about the direct bank financing in purchase of gold in any form i.e. gold coin, bullion, primary gold etc. According to the RBI these loans could lead to fuelling of demand for gold in the country, which is not good for the Indian Economy.

                         During the last one year period the price of gold rose about a mere 10% but despite that the demand for gold has never fall back. During the July-September quarter the demand for the yellow metal was up 27% on an annual YoY basis. These data has been showed by World Gold Council.

                         India is not only one of the biggest consumers of gold but also one of the biggest importers of gold too. India imports a large amount of gold every year, which cost India a large sum of money. So the growing demands of gold have been putting a lot of pressure on the Country’s trade balance. This notification is likely to help to control the trade balance of the country.

                         Market players said that this is primarily the reason for the government’s recent push to curb gold demand and import, RBI’s decision is direct fallout of the government’s decision only.