RBI allows jewellers to repay part of gold loan with physical gold

The Reserve Bank of India on Wednesday released a notification stating that jewellery exporters and domestic manufacturers of gold jewellery now have the option of replaying a part of their Gold (Metal) Loans (GML) using actual physical gold.

According to existing instructions, banks who are authorised to import gold and designated banks participating in Gold Monetisation Scheme, 2015 (GMS) can give out GML to jewellery exporters or domestic manufacturers of gold jewellery. The GML was only allowed to be repaid in the Indian currency (Rupees) which was to be equivalent to the value of gold that had been borrowed. However, RBI has now reviewed and made changes to these norms.

"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," noted the RBI circular issued on Wednesday. The option of repaying GML through physical gold will be subject to certain conditions.

On such condition is that the GML should have been extended out of locally sourced or GMS-linked gold. RBI noted that the repayment of GML has to be done using locally sourced IGDS (India Good Delivery Standard)/ LGDS (LBMA's Good Delivery Standards) gold. The bank added that the gold has to be delivered on behalf of the borrower to the lender directly by the refiner or a central agency without any involvement from the borrower.

Another condition for loan replacement using physical gold is that the loan agreement should contain details of the options that can be exercised by the borrower. It should also include details of acceptable standards and manner in which the gold had to be delivered for repayment of GML.

The Central Bank has also directed banks to suitably incorporate all aspects into the board-approved policy which governs GML. Banks should also include associated risk management measures.

"Besides, the banks shall continue to monitor the end-use of funds lent under GML", RBI added.

(Edited by Mohammad Haaris Beg; with PTI Inputs)

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