On November 19, 2012, the Reserve Bank of India (RBI) has notified all banks that there is a total ban from advancing any loans to their customers in regards the purchase of gold in any form. This will include gold billion, primary gold, gold jewelry, gold coins, units of gold Exchange Traded Funds and units of gold mutual funds.
The decision was announced at the October 30, 2012 policy meet by the central bank. However, the regulator had also announced that banks are allowed to give loans for genuine working capital requirements to jewelers.
The new notification was issued after it found that there has been a major rise in the import of gold into the country in recent times. The recent step has been taken by the central bank on concerns that direct bank financing for the purchase of gold in any form which is billion, primary gold, jewelery, gold coin etc, could lead to further fueling demands for gold in the country.
Over the course of the last year the price of gold has risen by 10%, however the demand for the metal during the July-Sept, 2012 quarter was up by 27 % on an annual basis. India has been a major consumer and importer of gold and the surge in gold imports can put pressure on the country’s trade balance.