Weighed down by CAD, govt may ban sale of gold by banks to arrest imports

The finance ministry has said the government could take more steps to reduce gold imports, which may include banning sale of the yellow metal by banks .

A sub-committee of Financial Stability and Development Council (FSDC), headed by Reserve Bank of India (RBI) Governor D Subbarao, met in the national capital on Monday.

"More steps will have to be taken to reduce gold imports... Export import policy on gold will have to be reviewed... May consider banning gold coin sale by banks," Department of Economic Affairs Secretary Arvind Mayaram said after the meeting.

Gold and silver imports during April jumped by 138 per cent to $7.5 billion against $3.1 billion in the year-ago period. Due to high gold imports, the country's trade deficit in April widened to $17.8 billion year-on-year.

Higher trade deficit in turn puts pressure on Current Account Deficit (CAD), which has been described as the biggest risk to the economy by the RBI.

CAD, which is difference between the outflow and inflow of foreign currency, touched a record high of 6.7 per cent in the October-December quarter on the back of rising oil and gold imports.

Gold imports into India, the world's largest consumer of the metal, stood at around 830 tonne in 2012-13.

Last month, the central bank had imposed curbs on import of the yellow metal by banks. Besides, it has also put restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs.

The government has also hiked import duty of the yellow metal.

The FSDC sub-committee discusses issues relating to the financial sector development and stability, including issues relating to inter-regulatory coordination. The sub-committee includes financial sector regulators and DEA Secretary.

Mayaram said the committee also discussed, among other things, regulations of chit funds.

With inputs from PTI