Central Bank of India has reiterated that UCBs (Urban Cooperative Banks) should not grant any advance for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds. The Full Circular is reproduced as
Bank Finance for Purchase of Gold
Please refer to our circular UBD.PCB.Cir.No 24/13.05.001/08-09 dated November 10, 2008 on ‘Advances against Pledge of Gold / silver ornaments’ advising UCBs (Urban Cooperative Banks) to observe certain safeguards while granting loan against pledge of gold/ silver ornaments.
2. In terms of announcements made in paragraph 102 and 103 (extract enclosed) of the Second Quarter Review of Monetary Policy 2012-13 on October 30, 2012, the significant rise in import of gold in recent years is a cause of concern as direct bank financing for purchase of gold in any form viz., bullion/primary gold/jewellery /gold coin etc would lead to fuelling of demand of gold for speculative purposes. It was therefore proposed that other than working capital finance, banks would not be permitted to finance purchase of gold in any form.
3. As you are aware, presently UCBs are permitted to grant loans against pledge of gold ornaments, but not permitted to grant any advance for purchase of gold in any form. In view of the concerns mentioned in para 2 above, it is reiterated that UCBs should not grant any advance for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds.
4. We have been receiving references from UCBs enquiring whether loans against gold ornaments availed by small borrowers could be classified as priority sector advances. In this connection it is clarified that the purpose of the loans and/or the loan amount sanctioned are the criteria for classification as priority sector advances and not the security for the loan.
For example, loans to small traders or small businessmen are essentially in the nature of working capital loan given primarily against the hypothecation of goods they deal with and therefore loan against gold jewellery to small businessmen may not necessarily be for undertaking trade or business.
5. Please acknowledge receipt of this circular to the Regional office concerned.