Chidambaram tells banks to discourage customers from buying gold

Finance Minister P Chidambaram has advised banks to tell customers not to invest in gold , saying surging imports of the yellow metal are unsustainable.

In view of the spiralling gold imports putting huge pressure on the current account deficit (CAD), the government on Wednesday hiked the import duty on gold, besides platinum, to 8 per cent from 6 per cent earlier.

This was the second hike in the duty within six months. The government had last raised the import duty on gold from 4 per cent to 6 per cent in January.

"Banks have a role to play in dampening the enthusiasm for gold... I would urge all banks to please advise their branches that they should not encourage their customers to invest in or buy gold", Chidambaram said while addressing the annual general meeting of the Indian Banks' Association (IBA).

The Reserve Bank of India has already "advised banks they should not sell gold coins... I hope a day will come when we regard gold as any other metal, it just shines a little more than copper or bronze," the minister said.

Expressing concern over rising CAD, Chidambaram said: "The gold imports have been a major contributor of the CAD. With the sharp drop in gold prices, millions were happy. I am afraid I was not among the millions. I told the (RBI) Governor that the drop in gold prices internationally is a bad news for India. Our fears came true."

Gold imports surged in April and May following fall in prices in the international market.

"In April we imported 142 tonnes of gold, in May we imported 162 tonnes of gold. Last year's monthly average was 70 tonnes of gold, this year in the first two months, the average is 152 tonnes of gold", he said, questioning "how do we sustain? How can we finance these gold imports."

With inputs from PTI