RBI bans gold imports with bank credit

MUMBAI: In what traders termed a near panic reaction to the sliding Indian rupee, the RBI banned import of gold by domestic consumers through bank credit and has made overseas purchase of the precious metal a cash & carry business.

The move will nearly cripple retail jewellery trade and probably lead to higher smuggling into the country, putting the clock back by nearly two decades when socialistic governments restricted gold imports. A day after P Chidambaram said that”necessarily we will have to check’ gold imports,” the central bank barred gold importers using letter of credit from banks for gold imports.

“All letters of credit to be opened by nominated banks, agencies for import of gold under all categories will be only on 100% cash margin basis,” the RBI said. “Further, all imports of gold will necessarily have to be on documents against payment basis. Accordingly, gold imports on documents against acceptance basis will not be permitted.” The rupee rose 0.5% to.`56.45 to the US dollar after the measures were announced.

The Indian rupee has been on a free-fall on record current account deficit, which touched a record high of 6.7% of the GDP in the December quarter. High imports of gold, crude and coal are blamed for the worsening trade balance. Various steps over the last few months have failed to dampen demand for the yellow metal.

“The effect of this will be shortage of gold in the marketplace,” said C Vinod Hayagriv, managing director at C Krishniah Chetty & Sons, a Bangalore based retail jeweller. “It will raise the cost of doing business as now manufacturers, retailers and exporters will need to wait after indenting (request for buying) for gold (as banks are running out of gold stocks).” The central bank has also tightened procedures for importing gold by extending restriction on consignment basis imports from banks to all nominated agencies such as the State Trading Corp.

Accordingly, any import of gold on consignment basis by both nominated agencies and banks shall now be permitted only to meet the needs of exporters of gold jewellery.

Earlier, on May 13, RBI had announced its decision to restrict gold imports on consignment basis by banks. This is the third time over the past month that RBI has come out with fresh curbs on gold import for banks. These restrictions are in addition to the proposal made in its annual monetary policy statement on May 4, which said that banks should ensure that the weight of the gold coins does not exceed 50 gram per customer and the amount of loan to any customer against gold ornaments, gold jewellery and gold coins should be within the approved limit.

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