RBI tightens gold on lending rules for regional rural banks

The RBI said regional rural banks should not lend against gold jewellery and gold coins weighing above 50 grams

June 28, 2013 11:28 IST | India Infoline News Service
The Reserve Bank of India (RBI) tightened restrictions on gold lending for regional rural banks (RRBs) and said the curbs extend also to units of gold exchange traded funds (ETF) and units of gold mutual funds to control demand for gold and the record high current account deficit.

At present, RRBs should not grant any advance against gold bullion. RRBs are, however, currently permitted to grant advances against gold ornaments and jewellery. Advances may also be granted against specially minted gold coins sold by banks which may not be in the nature of “bullion” or “primary gold”, RBI said in a notification on Tuesday.

However, there is a risk that some of these coins would be weighing much more, thereby circumventing the RBI’s guidelines regarding restriction on grant of advance against gold bullion, it added.

Accordingly, it is advised that while granting advance against the security of specially minted gold coins sold by banks, RRBs should ensure that the weight of the coin(s) does not exceed 50 grams per customer and the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the Board approved limit.

As these products (gold ETFs and gold MFs) are backed by bullion/primary gold, it is clarified that the restriction on grant of loan against “gold bullion” will also be applicable to grant of advance against units of gold ETFs and units of gold mutual funds, the notification further said.

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