RBI bars loan against Gold ETF and MF

Reserve Bank of India (RBI) today said banks and non-banking finance companies (NBFCs) would not be allowed to extend loans against units of gold exchange traded funds (ETFs) and gold mutual funds. 

The move is aimed at curbing rising demand for the yellow metal. During the annual policy review earlier this month, RBI had told banks to ensure the weight of any specially minted gold coin did not exceed 50g per customer. And, the amount of loan to any customer against gold ornaments, gold jewellery or gold coins, weighing up to 50g, should be within the Board-approved limit. 

As the Banks have queried the RBI whether an advance against units of gold ETFs or gold MFs are permitted, the central bank clarified that the restriction also applied for such products. Gold ETFs had assets under management of Rs 11,648 crore at the end of the March quarter, according to data from the Association of Mutual Funds in India. Companies accounted for the bulk of the assets, at Rs 6,345 crore; retail investors were second with Rs 3,124 crore. Banks, foreign institutional investors and wealthy individuals accounted for the remaining amount. 

As such, advances against gold ETFs and mutual funds in the retail segment are negligible.

RBI has further clarified that no advances be given by NBFCs against bullion or primary gold and gold coins. It has also said NBFCs should not grant advances for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold ETFs and units of gold MFs.