Indian Central Bank likely to impose curbs on gold coin sale

Business Standard ^ | Mumbai Jun 27, 2012, 00:36 IST | Manojit Saha

[DeaconBenjamin]

The Reserve Bank of India (RBI) is likely to clamp down on gold coin sales by banks, amid rising bullion imports adding pressure to the current account deficit and weakening the rupee.

The Banking Regulation Act does not allow banks to trade in commodities and they play the role of a financial intermediary. This norm was relaxed in the pre-2008 era when the country saw a dollar influx that resulted in a sharp appreciation of the rupee. To sterilise dollar inflows, banks were allowed to sell gold, as they imported the yellow metal. The measure was temporary.

“Banks were allowed to sell gold by importing it to fight the excess dollar flows. By the same logic, the measure should be reversed now as we are at the opposite end of the spectrum. It was a temporary measure, which unfortunately was made permanent by banks,” a top RBI official said.

IMPORTS OF GOLD AND SILVER

April-December 2009
$19.26 billion
April-December 2010
$29.50 billion
April-December 2011
$45.76 billion

Source: RBI

The rupee has depreciated 30 per cent since August amid the sovereign debt crisis in the euro zone, which made investors flee to safer havens. Weakening macroeconomic fundamentals like the fiscal and the current account deficit have resulted in investors pulling out from the Indian market.

In its recent interactions with bankers, the central bank sounded its discomfort over the practice of banks pushing gold coin sales and asked them to go slow. However, banks have not stopped the practice of incentivising their staff to push gold sales, as they earn a margin of Rs 100-150 [$2-3] per gramme of gold sold.

Gold and silver imports were around $61.5 billion as of March-end — a growth of 44.4 per cent during 2011-12 as against 43.5 per cent in 2010-11. In 2011, India imported 969 tonnes of the yellow metal compared to 958 tonnes in the previous year, according to data compiled by the World Gold Council. In value terms, imports in 2011-12 were around $60 billion. However, according to data released by the government, gold and silver imports in April and May 2012 came down sharply to $4.3 billion, compared to $9.2 billion last year.

RBI Governor D Subbarao had earlier said the central bank was looking into the issue of rising gold imports and formed a committee headed by an executive director-rank officer to examine the reasons.

[DManA]

It’s almost a knee jerk reaction from statists that when their mismanagement becomes apparent they clamp down on citizens’ rights. As if that makes things better.

[Little Pig]

Gold can still be bought here, in bullion and coin form as well as others, from a staggeringly-wide range of sources. All this means is that the banks themselves can’t do the selling.