What changed
The Government of India, via Public Notice No.28/2004-09 dated December 1, 2004, increased the period for fixing price and repaying gold loans from 60 days to 180 days from the date of export. Consequently, the maximum gold loan tenor becomes 240 days (60 days for manufacture/export + 180 days for price fixing/repayment). RBI has aligned its guidelines accordingly, clarifying that the maximum tenor is as per FTP 2004-2009 or as notified by the Government.
What it means for you
Banks can now offer gold loans to eligible jewellery exporters with a maximum tenor of 240 days, providing exporters more flexibility in price fixing and repayment. ADs are permitted to open Standby Letters of Credit (SBLC) for such imports, but only for nominated agencies and 100% EOUs/SEZ units in the gem and jewellery sector, and only in favor of internationally renowned bullion banks. Banks must maintain documentation linking imports to SBLCs.
What you must do
- Update internal gold loan policies to reflect the maximum tenor of 240 days for eligible jewellery exporters.
- Ensure SBLCs are opened only for nominated agencies and 100% EOUs/SEZ units in gem and jewellery, and only in favor of internationally renowned bullion banks.
- Maintain adequate documentation to uniquely link each gold import with the corresponding SBLC.
- Communicate the revised guidelines to all relevant constituents and customers.
Who it affects
Scheduled commercial banks authorized as ADs in foreign exchange, Nominated agencies and approved banks importing gold on loan basis, 100% Export Oriented Units (EOUs) and units in Special Economic Zones (SEZs) in gem and jewellery sector, Jewellery exporters using gold loan arrangements
What is the new maximum tenor for gold loans under this circular?
The maximum tenor is 240 days, comprising 60 days for manufacture and export plus 180 days for price fixing and repayment, as per the Foreign Trade Policy 2004-2009 and Public Notice No.28/2004-09.
Can ADs open Standby Letters of Credit (SBLC) for any entity importing gold on loan basis?
No, SBLCs can only be opened for nominated agencies and 100% EOUs/SEZ units in the gem and jewellery sector, and must be in favor of internationally renowned bullion banks. The SBLC tenor must match the gold loan tenor.
Does this circular require any additional approvals beyond FEMA?
Yes, the circular is issued only from the foreign exchange angle under FEMA, 1999. Entities must obtain any other statutory or government approvals required under other laws/regulations before effecting transactions.