India's RBI discourages gold purchases yet again
RBI bans banks from giving loans, as it feels direct bank financing for the purchase of gold could lead to fueling of demand for gold.
Posted: Tuesday , 20 Nov 2012
MUMBAI (Mineweb) -
In yet another crackdown, India's apex bank, the Reserve Bank of India has directed commercial banks not to give loans for the purchase of gold in any form, including primary gold, bullion and jewellery. In fiscal 2012, India imported nearly 1,067 tonnes of gold worth nearly $60 billion.
The RBI ban involves bank advances that are likely to be utilised for purposes of financing gold purchase at auctions or speculative holding of stocks and bullion.
Shares in gold finance companies Manappuram Finance and Muthoot Finance slid on November 20, after the RBI's decision. Muthoot Finance traded 1.9% lower while Manappuram Finance fell 3%, on a day when both the bourses staged a recovery.
Though India's foreign exchange reserves went down by $781.5 million for the week ended Nov 9, as per RBI data, the gold reserves value remained unchanged at $28.18 billion, for the week ended Nov 2. Moreover, the value of the gold reserves rose by 56.4 million at $28.18 billion.
India's Finance Ministry has also asked the apex bank to introduce a gold accumulation plan for consumers, which will aim to direct investment in the yellow metal, rather than purchase gold ornaments and push it into a locker.
India’s savings rate has increased substantially in the last 60 years. The savings rate, which was just 8.6% of GDP in 1950-51 increased to 33.7% by 2009-10. Almost half of household savings is held in financial assets.
However, saving in physical assets, which took up 89.3% of total household saving in 1950-51, has come down to 49.8% by 2009-10, reflecting growing monetisation of the economy. The Finance Ministry's gold accumulation plan is aimed at encouraging households to shift from physical investment in gold, perceived as a dead investment by policy makers, into financial assets.
Bankers have said that the Indian economy is capable of 9% growth in the medium term. For this, however, the financial sector needs to grow in tandem, and steps need to be taken to channel household savings increasingly into financial savings.
Source: India`s RBI discourages gold purchases yet again
