Banks have asked the Reserve Bank of India to allow them to buyback gold which is not allowed at present, though banks are allowed to sell gold coins.
In an interaction with Subir Gokarn deputy governor, RBI, at the annual banking conclave BANCON, State Bank of India’s chairman Pratip Chaudhuri suggested such a move which will in turn will improve market liquidity.
“Today all the banks are selling gold but RBI does not allow to buyback their own gold. Suppose somebody has taken gold from my bank and the same gold, without opening the seal, comes back, banks are not allowed to buyback. What would be the underlying thoughts as it is impeding the liquidity of gold holdings,” Chaudhuri asked the regulator in an interaction which followed by a speech by Gokarn on the country’s gold import problem.
In 2011, the country imported 969 tonnes of the yellow metal, according to World Gold Council data. The country, which is the largest importer of gold, had increased the import duty to discourage gold imports.
RBI had announced to set up a committee under K U B Rao to look at the issue of lending by NBFCs against gold and to assess the trends in demand for gold loans. The group was also examining to study the factors influenced gold imports and analyse the implication of gold imports for external and financial stability. The committee's report will be in the public domain shortly.
“Gold is being demanded for many reasons, there are many factors that are driving it and there is no reason at all to deny in any way investors from accessing it. But it is creating some macroeconomic stresses and so the challenge is to find ways to replicate the financial characteristics of gold without necessarily causing physically importing,” Gokarn said.
The central bank has mooted alternative channels for investment which will fetch gold like investments to discourage physical investment in gold. According to Gokarn, the proposed gold backed instruments are, modified gold scheme, gold linked account, gold accumulation plan and gold pension plan.
In the modified gold backed scheme, it is proposed that the physical gold to be deposited for a definite period with interest payment in grammage after maturity. In the gold linked account, it is proposed to be a non-interest bearing account while gold accumulation plan will be a similar to the systematic investment plan of mutual fund scheme, in which the SIP will buy small quantity regular intervals. The gold pension plan, which is mulled for the senior citizens will have the feature of reverse mortgage product of properties.
The Reserve Bank had earlier directed banks not to give loans for purchase of gold in any form, including primary gold, bullion and jewellery, to dissuade people from indulging in speculative activity.
"It is advised that no advances should be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold mutual funds," RBI said had.
