Banks to approve loans provided borrowers don't buy gold

Measures follow directions from RBI to banks, NBFCs that are aimed at reining in demand for yellow metal

With a view to curb appetite for gold, banks are sanctioning advances, including personal loans, only if borrowers agree not o use the proceeds to buy the metal beyond permitted levels.

Banks have placed the condition that borrowers should not use even personal loans to buy gold, a senior official of a private sector bank said.

The measures follow directions from the Reserve Bank of India to banks and NBFCs that are aimed at reining in demand for the yellow metal.

The RBI and the government have taken steps to curb demand for gold after imports of the metal widened the current account deficit.

As per existing guidelines, no advances can be granted by banks for the purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds and units of gold mutual funds.

For advances against the security of specially minted gold coins sold by banks, the RBI has directed that the weight of the coins should not exceed 50 grams per customer, according to a senior public bank official.

In June, the RBI restricted the import of gold on consignment basis by banks only to meet the needs of exporters of gold jewellery. Last month, the central bank prohibited the import of gold coins and medallions without licence.

It further stipulated that nominated banks, agencies and other entities should make gold available for domestic use only to entities engaged in the jewellery business, bullion dealers and banks authorised to administer the gold deposit scheme against whole upfront payment.

Steps taken by the government to curb inbound shipments include raising import duty on the metal to 10%.

After a dip in June, gold imports surged in July to 47 tonnes compared with 31 tonnes in the previous month. Import of gold in April-July rose 87% to 383 tonnes.