In a bid to restrict escalating gold imports, the Reserve Bank of India (RBI) on Tuesday extended the restrictions on gold imports from banks to all other nominated agencies or star trading houses, which have been allowed by the government to import gold. At the same time, nominated banks and other agencies can import gold only on 100 percent cash basis, unlike using all letter of credit (LC) benefits.
"It has now been decided to extend the provisions (of the earlier circular) to all nominated agencies/ premier / star trading houses. Accordingly, any import of gold on consignment basis by both nominated agencies and banks shall now be permissible only to meet the needs of exporters of gold jewellery," RBI said.
Also read: Inflation-indexed bonds subscribed fully in RBI auction
In April, 2013, gold and silver imports surged by 138 percent to USD 7.5 billion, as against USD 3.1 billion a year ago. The World Gold Council (WGC) expects India's gold import to touch a record level at 300-400 tonne in April-June quarter.
Star trading houses are considered big houses, which generally import gold with the minimum size of 500 kg.
"These measures are likely to bring down speculative trading. This is the basic objective of the government. Overall, it will have some impact on the widening current account deficit (CAD)," a senior official from the State Bank of India told moneycontrol.com on conditions of anonymity.
India's CAD widened from 5.4 percent in the July-September quarter to a record high of 6.7 percent of GDP in the October-December quarter, driven mainly by huge trade deficit.
Earlier, some star trading houses used to import gold more than their requirments. They used to get the orders on a consignment basis. For example, if the requirment is 100 kg, order is placed for 500 kg gold. The importer, however, does not receive the entire order in onego, for which LC is issued. They get this in tranches based on their needs, and make cash payments accordingly.
"This practice was there earlier. With the new guidelines, it is no more possible. However, it will not create any hurdles for traders, who would now take bank loans to make an upfront (100 percent) cash payments. Irrespective of anything, gold demand is unlikely to come down," said Kapil Parekh, vice president - the Bombay Bullion Association.
According to RBI, these restrictions will however not apply to import of gold to meet the needs of exporters of gold jewellery.
"All imports of gold will necessarily have to be on Documents against Payment (DP) basis. Accordingly, gold imports on Documents against Acceptance (DA) basis will not be permitted," RBI said.