RBI bats for gold-linked products

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SummaryNew financial products linked to gold, but which do not require physical gold import, must be introduced and popularised to curb the demand for the yellow metal in the country and, thereby, reduce imports, Reserve Bank of India deputy governor Subir Gokarn has said.

Need for products linked to gold that don’t require physical import of metal: Gokarn

New financial products linked to gold, but which do not require physical gold import, must be introduced and popularised to curb the demand for the yellow metal in the country and, thereby, reduce imports, Reserve Bank of India (RBI) deputy governor Subir Gokarn has said.

“At the end of the day, the concern is on the balance of payments,” said Gokarn, during a speech at the banking conference, BANCON 2012, hosted by Bank of Maharashtra.

“Essentially, the role of innovation is not denying people (a chance) to invest in gold, but find ways to give them instruments with gold-like qualities,” he added.

Gokarn said some products that banks could introduce were modified gold deposits, gold accumulation plans, gold pension plans and gold-linked bank accounts. The key factor in these products is to reduce the need to hold bullion in its physical form and ensuring that the payout at maturity is in currency.

In the past, public sector banks had introduced gold-linked deposits, which failed to enthuse customers.

Of late, gold exchange-traded funds have become popular, but are still not widely used by the public to invest in gold. Gokarn said ETFs require the seller to keep physical gold that is equal to 100% of the ETF value and, therefore, do not serve the purpose of drawing people away from physical gold.

India’s gold imports have risen sharply over the last one year, putting immense pressure on the country’s current account deficit and Balance of Payments.

Gold imports grew nearly 40% during 2011-2012, which resulted in a record current account deficit of 4.2% of the gross domestic product.

The rise in gold demand has happened despite the sharp rise in prices of gold, Gokarn said. The World Gold Council predicts that gold imports may touch 800 tonne during the current year. The sharp rise in gold imports and the strong demand for gold in the country led the government to impose a duty on gold imports. The RBI has clamped down on banks’ gold loans to avoid speculative activity related to bullion. The

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