RBI tightens gold lending norms for regional rural banks

MUMBAI: The Reserve Bank of India tightened restrictions on gold lending on Tuesday 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 tame demand for the yellow metal and rein-in a record high current account gap.

The RBI said regional rural banks should not lend against gold jewellery, gold ornaments and gold coins weighing above 50 grams, a norm already applicable for all other banks.

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'. "However, as pointed out in the monetary policy statement on May 3, 2013, there is a risk that some of these coins would be weighing much more, thereby circumventing the Reserve Bank's guidelines regarding restriction on grant of advance against gold bullion," the statement said.

Accordingly, RBI has 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 gold ETFs and gold MFs are backed by bullion/primary gold, RBI clarified that the restriction on grant of loan against 'gold bullion' stipulated in terms of its circular in 1978 will also be applicable to grant of advance against units of gold ETFs and units of gold Mutual Funds.

Earlier this month, RBI extended restrictions on loans against security of gold coins per customer to all co-operative banks on Friday in its continuing efforts to temper demand for the yellow metal.

In a notification to all state and central co-operative banks, the RBI had said loans against the security of gold coin would be up to 50 grams per customer.

In the RBI's monetary policy in May, the central bank had announced the restrictions for banks.

In May the RBI imposed restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs and mutual funds.