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Indians still restricted on gold imports but can borrow more against their gold holdings

  • Tuesday, July 22 2014 @ 02:06 PM EDT
  • Views: 2,567
Gold There was much "hope" that the incoming Narendra Modi government would ease up the gold import restrictions but if the new finance minister Arun Jaitley is to be believed, restrictions on gold import are likely to remain in place.

"Each step is being continued...efforts are being made to continue each of these steps," Jaitley said while referring to measures taken by the UPA government last year to contain Current Account Deficit (CAD) that touched a record high of 4.7 of GDP or $88.2 billion in 2012-13.

"The measures taken by the government and the RBI helped contain India's current account deficit to $32.4 billion in 2013-14 and build up foreign exchange reserves to a level of $316.4 billion on July 4, 2014," Jaitley said in reply to questions in Rajya Sabha."

Additionally the Reserve Bank of India is doing away with previous restrictions on how much banks could loan citizens where gold (jewelry) was being used as collateral.

"The Reserve Bank of India has done away with the Rs 1-lakh limit on the amount of non-agriculture loan sanctioned by banks at any point of time against the pledge of gold ornaments and jewellery. Henceforth, banks, according to their board-approved policy, can decide on the ceiling with regard to the quantum of loans that can be granted against the pledge of gold jewellery and ornaments for non-agricultural end-uses, the central bank said in a notification.

However, the RBI underscored that the loan-to-value (LTV) ratio of 75 per cent has to be maintained throughout the tenure of the loan for all such loans. LTV is the amount of loan given as a percentage of the appraised value of the pledged security."

It looks like the Indians are being squeezed on both ends. Hard to buy gold. Easy to borrow against what you have; with the open risk that a decline in price will get a call from your banker who will likely be more than happy to liquidate your (discounted) collateral if you are unable to cover any shortfalls.

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