Banks can now lend gold loans to local firms

The Reserve Bank of India (RBI) today allowed banks to lend gold loans to domestic jewellery manufacturers. Thus far, banks were allowed to lend gold only to jewellery exporters.

In a notification, RBI said gold loans and other non-funded commitments of banks would have to be within the ceiling of 25 per cent of tier-I capital for gold exposures. The ceiling would include gold loans extended to jewellery exporters.

RBI has also asked banks to adhere to the "know-your customer" guidelines and also ensure end-use of gold loans.

The tenor of gold loan cannot exceed 90 days and interest charged to gold borrowers would have to be linked to that of international gold interest rate.

Any mismatch arising out of the gold borrowings and lendings should be within the prudential risk limits approved by the boards of banks nominated to engage in gold lending.

At present, nominated banks can extend gold loans to exporters of jewellery, who are customers of other banks, by accepting stand-by letter of credit or bank guarantee issued by the exporters' bankers in favour of the nominated banks.

RBI has now decided to extend this requirement for gold loans to domestic jewellery manufacturers provided that standby LC or bank guarantee is issued by scheduled commercial banks in favour of nominated banks.

The bank issuing the standby LC or bank guarantee will need to carry out proper credit appraisal.

ALL THAT GLITTERS...

RBI said gold loans and other non-funded commitments of banks would have to be within the ceiling of 25 per cent of tier-I capital for gold exposures

RBI has also asked banks to adhere to the "know-your customer" guidelines and also ensure end-use of gold loans