'Curbing bank funds will spike gold prices'

The Reserve Bank of India’s decision to restrict bank finance to gold imports meant only for jewellery exports will adversely affect supply of gold and increase prices, apart from boosting grey market, according to the All India Gems and Jewellery Federation (GJF).

“The RBI’s restriction on the import of gold on consignment basis by banks only to meet the genuine needs of exporters of gold jewellery, will have repercussions on the industry.The premium on the products will rise, the volatility will rise, there will be disparity in the market, disturbance in the supply chain and flourishing of the grey market,” GJF  Chairman Haresh Soni said in a statement.

Instead, the government should take steps like banning imports of coins, unlock public coins in market, limit or ban sale of coins by banks, encourage local coin manufacturers, he added and called for introducing measures to identify gold used for investment purpose and for retail consumption.

“The non productive gold lying with exchange traded funds (ETF) should be channelised through nominated agencies in the domestic market, so that the import of the precious metal can be reduced,” he said.

The RBI last week tightened the screws on both bank and NBFCs into gold funding business and restricted banks financing gold import to gold jewellery exporters. The apex bank, while announcing the annual monetary policy, also restricted the lending against gold coins up to 50 gm.

GJF Director Ashok Minawala said the industry does not believe that the apex bank’s latest move this move would help in addressing the issue of widening current account deficit. However, curtailing the import of gold on consignment basis will harm jewellery makers as they won’t be able to secure loans in the form of gold from banks as prevalent in the industry.

“This move will definitely have a negative impact on procurement of gold for manufacturing and distribution and the consumer will eventually face shortages,” he said.