Seeking to check demand of gold, a RBI committee today proposed a slew of measures like mandatory quoting of PAN card numbers for high-value purchases, restriction on gold loans and check on NBFC branches dealing with gold loans.
The Reserve Bank committee also suggested cheque payment for gold purchase beyond a threshold, introduction of other savings products to discourage investment in physical gold, prohibition of bank finance for buying gold and revival of the two-decade old proposal to set up a Bullion Corporation.
"There is a need to moderate the demand for gold imports considering its impact on the current account deficit," it said, adding that RBI may impose limits on volume and value of gold import by banks under "extreme situation".
Currently, banks account for about 60 per cent of the total gold import.
It suggested that NBFCs may obtain a copy of PAN card in all the loan proposals exceeding Rs 5 lakh per borrower to strengthen mechanism of KYC. Currently, PAN card is mandatory for jewellery purchases beyond Rs 5 lakh.
The committee underlined the need for continuous monitoring of rapid growth of assets, borrowings and branch network of gold loan NBFCs, while making a case for reviewing fund raising by them.
The recommendations include making use of idle gold reserves, which is about 20,000 tonnes, by setting up a gold bank and using the reserves of exchange-traded funds to productive use, but said there was no case for granting gold loan NBFCs a status at par with banks.
Giving its rationale for setting up a gold bank, the report said, "the proposed gold bank may be given powers to import, export, trade, lend and borrow gold and deal in gold derivatives."
Headed by RBI official K U B Rao, the committee suggested three-pronged strategy – demand reduction, supply management and monetisation of gold stocks – to deal with the rising gold import which has widened Current Account Deficit (CAD).
The Committee suggested that introduction of gold-linked financial instruments, gold bonds and tax incentives on instruments that can impound idle gold.
"Creation of an alternative asset class that may provide returns comparable to return on investment in physical gold with similar flexibility is important," it said.
Gold import is the second major contributor to the CAD after oil. Gold import in April-December stood at USD 38 billion. In 2011-12 fiscal it was USD 56 billion.
The CAD, which is the difference between the inflow and outflow of foreign exchange, widened to a record high of 5.4 per cent of GDP in the July-September quarter.
"Large gold imports, if unchecked, can potentially threaten the external stability and, therefore, there is an unambiguous need to moderate them," RBI report said.
To contain gold import, the government last month hiked import duty on gold to 6 per cent, from 4 per cent. It also linked gold Exchange Traded Fund (ETF) with bank gold deposit scheme to enable MFs to unlock their physical gold and invest in gold-linked schemes offered by banks.
The panel further said there is a "need to reduce gold loan NBFCs' heavy borrowings from banks so as to reduce their interconnectedness with formal financial system gradually".
"There is a need to thoroughly review the operational practices followed by gold loan NBFCs," the panel said adding there are concerns on some gold loan NBFCs have been raising public deposits "surreptitiously" through incorporated bodies.
It also suggested that banks may expand their gold jewellery loan portfolio to monetise the stock of idle gold and there should not be any limit on advances against gold jewellery and gold coins by individuals.