A Reserve Bank of India (RBI) Working Group has proposed a host of measures like curbs on imports of gold, mandatory quoting of PAN for high-value purchases, introduction of new products and restriction on gold loans and check on NBFC branches dealing with gold loans in order to “address the issue of excessive clamour for gold imports”.
The RBI panel, headed by KUB Rao, suggested cheque payment for gold purchase beyond a threshold, introduction of savings products like gold certificate, inflation indexed bonds, gold-linked bonds 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.
A record high current account deficit of 5.4 percent of GDP in the September quarter has raised concern at the RBI, prompting it to link further monetary policy easing to a lower current account deficit. “The economy needs to moderate the demand for gold imports and bring down the current account deficit (CAD) to a more sustainable level,” it said.
“The group’s recommendation that setting limits on imports by canalising agencies and banks can reduce the demand for gold should be read from the context of an extreme and dire need to reduce gold imports, when external stability is threatened. When the CAD as a per cent of GDP comes down to a sustainable level, these restrictions need not be considered,” it said. 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. 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 on par with banks.
Gold Bank: PM’s 21-year-old proposal
In 1992, the proposal for setting up a ‘Gold Bank’ was mooted by the then Finance Minister Dr Manmohan Singh in his Budget Speech of February 1992. But the proposal was not implemented.