The RBI on Wednesday asked banks to provide an option to jewellery exporters and domestic manufacturers of gold jewellery to repay a part of Gold (metal) Loans (GML) in physical gold.
As per the extant instructions, banks authorised to import gold and designated banks participating in Gold Monetisation Scheme, 2015 (GMS) can extend GML to jewellery exporters or domestic manufacturers of gold jewellery.
GML are repaid in Indian rupees, equivalent to the value of the yellow metal borrowed.
Now, the Reserve Bank has reviewed the norms.
As per an RBI circular, "banks shall provide an option to the borrower to repay a part of the GML in physical gold in lots of one kg or more," subject to certain conditions.
One of the conditions is that the GML has been extended out of locally sourced or GMS-linked gold.
Also, the repayment had to be made using locally sourced IGDS (India Good Delivery Standard)/ LGDS (LBMA's Good Delivery Standards) gold; and the yellow metal has to be delivered on behalf of the borrower to the bank directly by the refiner or a central agency without the borrower's involvement.
Another condition is that the loan agreement should contains details of the option to be exercised by the borrower, acceptable standards and manner of delivery of gold for repayment.
RBI also asked banks to suitably incorporate all aspects into the board-approved policy governing GML along with concomitant risk management measures.
Besides, the banks shall continue to monitor the end-use of funds lent under GML, RBI added.
In 2015, the government had launched the Gold Monetisation Scheme to mobilise the yellow metal held by households and institutions in the country.
Photograph: Shailesh Andrade/Reuters