What changed
RBI reiterated and clarified its existing prohibition on co-operative banks financing gold purchases. The circular explicitly extends the ban to all forms of gold—primary gold, bullion, jewellery, coins, units of gold ETFs, and gold mutual funds—beyond just working capital finance. This follows concerns raised in the Second Quarter Review of Monetary Policy 2012-13 about rising gold imports fueling speculative demand.
What it means for you
Co-operative banks must immediately stop all new lending for gold purchases in any form, except for working capital finance. Existing gold loan portfolios against pledged ornaments remain unaffected, but any advance meant for buying gold is now strictly prohibited. This tightens the regulatory noose on gold-related lending to curb speculative activity and reduce gold import pressure.
What you must do
- Review all loan products to ensure no advance is sanctioned for purchase of gold in any form, including bullion, jewellery, coins, ETFs, or mutual fund units.
- Update internal lending policies and credit approval checklists to explicitly exclude gold purchase financing.
- Communicate this prohibition to all branches and credit officers with immediate effect.
- Acknowledge receipt of this circular to the respective RBI Regional Office.
Who it affects
State Co-operative Banks, Central Co-operative Banks, Borrowers seeking gold purchase loans from co-operative banks
Does this circular affect loans against pledge of gold ornaments?
No. The circular explicitly states that loans against pledge of gold ornaments remain permitted. The prohibition is only on advances for purchase of gold in any form.
Are gold ETFs and gold mutual funds covered under this ban?
Yes. The circular specifically includes units of gold Exchange Traded Funds (ETFs) and units of gold Mutual Funds in the list of prohibited forms of gold purchase financing.
Is working capital finance for gold-related businesses still allowed?
Yes. The circular permits working capital finance as an exception. All other financing for gold purchase in any form is prohibited.