Banks are not allowed to trade on the commodities market, including gold, as the regulator and the government fear that their entry could spike inflation that too when all banks are selling gold, but are not allowed to buy back the same
Mumbai: The Reserve Bank of India (RBI) should relook at the ban on banks buying back gold as such a move could improve liquidity in the system, increase supply of the metal and bring down imports, said Pratip Chaudhuri, chairman of State Bank of India (SBI).
Banks are not allowed to trade on the commodities market, including gold, as the regulator and the government fear that their entry could spike inflation.
"The existing ban is impeding the liquidity of gold holdings in the country. Today all banks sell gold, but the RBI does not allow them to buy back their own gold. Suppose, somebody has taken gold from my bank and the same gold, even without opening the seal comes back to me, I cannot buy it back", Chaudhuri said, addressing a panel discussion on gold imports at the second day of the national banking summit Bancon.
"What could be the underlying thought? Don't you think it is impeding the liquidity of gold holdings in the country," Chaudhuri asked RBI deputy governor Subir Gokarn, to which he responded that the RBI could revisit the subject once the BKU Rao report on the subject is submitted.
"Obviously, we have to reconcile to the existing regulatory barriers. Once we have feedback on the points, we will come for debate," he said, adding that the RBI panel would shortly elaborate on ways to deal with the problem arising from high gold imports on the macroeconomic front, in the from of balance of payments.
Experts blame rising gold demand, price rise and the resulting surge in imports to hoarding by jewellers and other market participants.
Gokarn called for dematerialisation of gold to arrest rising gold demand, as rising imports of the metal has been blamed for the high current account deficit feared to touch new record highs this year.
The current account deficit or CAD has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising crude oil and gold imports.
He said while global gold output has stayed stable at around 4,000 tonne per year, domestic consumption of the yellow metal doubled to 1,000 tonne annually since 1999, despite a massive rally in prices.
As gold imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2% in the year, the RBI unveiled a slew of curbs on gold purchase and financing.
Last fiscal, there was a 39% rise in gold imports and in gross terms, it constituted for 80% of the current account deficit, which reached an all time high of 4.2%, Gokarn said, adding that net gold imports constitute for 1.8-2.4%t of GDP.