No loan against gold ETFs, MF, coins and also to buy gold

Ask any financial planner what’s the best way to buy gold, and she will tell you paper gold. Simply put, gold in the form of gold exchange traded funds (ETFs)and gold mutual funds (MFs) is better then gold in physical form of coins, bar, jewellery. But, if you are someone who plans on taking a loan against gold, forget about buying gold ETF and MF. Reason being, the Reserve Bank of India (RBI) now bars loans against ETFs and MF.

According to a report published in Business Standard today, this move by the apex banks was brought about with the aim of curbing rising demand for the gold. In fact, during the central bank’s annual policy review earlier this month, it was decided by RBI and communicated to banks to ensure the weight of any specially minted gold coin did not exceed 50g per customer.

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This means, that the amount of loan you can get against gold ornaments, gold jewellery or gold coins, weighing up to 50g, will have to be within the Board-approved limit.

As far as restrictions on gold ETFs goes, the industry isn’t too worried, since loan against paper gold is still a small portion of the loan against gold market. The story quoted, Sundeep Sikka, chief executive, Reliance Capital Asset Management, who said, “The majority of investors coming into these funds were retail investors. I don’t believe they look to leverage the product in such a manner. On an industry-wide basis, I don’t believe that the practice of using gold ETFs to obtain loans is of any significant scale,” he said.

The apex bank also reinforced that non-banking financial corporations (NBFCs) cannot give loan against gold coins. This means, if you have gold coins you cannot pledge them to get a gold loan. You won’t be able to get a loan to buy gold from NBFCs either since RBI has restricted NBFC’s from doing so. The notification on RBI websites says, " It is clarified that no advances should be granted by NBFCs for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds."

In short, as a gold consumer, you won’t get a loan against gold ETFs, MF and coins. If you plan to buy gold, you can’t avail a loan from an NBFC to do so. Hardly any bank offers a loan to buy gold. Looks like the authorities are doing their best to nudge Indian’s away for gold.