RBI working committee proposes banks to increase jewel loans
Banks should increase their gold jewellery loans portfolio to rein in huge imports of gold, a working committee set up by the Reserve Bank of India (RBI) suggested.
The working committee was set up by the central bank to make suggestions to fix issues related to huge gold imports and gold loans provided by non-banking finance companies (NBFCs).
The working group said in its report that increasing gold jewellery loans portfolio by banks would greatly facilitate monetisation of large stocks of gold.
Making the suggestion, the group said, "This greatly facilitates monetisation of huge stocks of gold. Given the superior quality of gold as collateral, the prudential norms like risk weights and provisioning on gold loans may be softer than other loans."
The group proposed the establishment of `Bullion Corp. of India' (BCI) as a backstop facility to provide refinance to institutions that lend against the collateral of gold, and also to take on retailing functions in gold, including pooling of inactive gold, in the system.
It was also suggested that the proposed BCI could be allowed to make purchases and sales of gold as well as to issue gold bonds and collect the gold stocks.
Large imports of the precious yellow metal are widening the country's current account deficit (CAD). Given the impacts of large imports of gold on the CAD, there is a need to ease the demand for gold imports.
The country's CAD jumped to a record high of 5.4 per cent of the gross domestic product during the second quarter of the current fiscal year, from 4.2 per cent in the corresponding period of the previous fiscal.