What changed
RBI reinforced the February 2013 prohibition on UCBs granting advances for gold purchase in any form, citing concerns over speculative demand and rising gold imports. It also clarified that loans against gold ornaments are not automatically priority sector advances—classification depends on the loan's purpose and amount, not the collateral.
What it means for you
UCBs must stop all direct financing for gold acquisition, including through ETFs and mutual funds, except working capital. Lenders cannot treat gold-backed loans as priority sector simply because the security is gold; they must assess the borrower's actual business use. This tightens credit flow to gold purchases and may reduce speculative demand.
What you must do
- Review and update internal policies to explicitly prohibit advances for gold purchase in any form, including bullion, jewellery, coins, ETFs, and gold mutual funds.
- Ensure loan against gold ornaments is not automatically classified as priority sector; verify the purpose and amount to determine eligibility.
- Train credit officers on the distinction between working capital finance (allowed) and gold purchase finance (prohibited).
- Audit existing gold-related loan portfolios to identify any non-compliant advances and rectify immediately.
- Acknowledge receipt of this circular to the respective RBI Regional Office.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Borrowers seeking loans for gold purchase, Small traders and businessmen using gold as collateral
Can UCBs still give loans against gold ornaments?
Yes, loans against pledge of gold ornaments are permitted, but they cannot be used to finance the purchase of gold. The loan purpose must be for other legitimate needs, and priority sector classification depends on that purpose, not the collateral.
Does this circular apply to working capital finance for gold dealers?
No, working capital finance is explicitly exempt. Banks can provide working capital to gold dealers/traders, but not loans specifically for purchasing gold in any form.
What happens if a UCB has already sanctioned a gold purchase loan?
Such advances would be non-compliant with RBI guidelines. UCBs should review their portfolios and take corrective action, including recalling or restructuring such loans, to align with the prohibition.