India pushed import duty on gold jewelry up by half to 15 percent, the finance ministry said on Tuesday, setting it higher than raw gold duty in a move aimed more at protecting the domestic jewelry industry than stemming bullion imports.
India imported gold jewelry worth $137.57 million in the four months from April to July this year — a fraction of overall bullion imports, which were $2.9 billion in July alone.
The government has curbed gold imports through measures including three duty hikes this year to a record 10 percent and the central bank has put tight restrictions on importers that have sharply curtailed supplies.
India, the world’s biggest buyer of bullion, had imported a record 162 tonnes in May and creating a headache for the government which is trying to curb a wide current account deficit and support a weak rupee.
Gold is the biggest non-essential item in India’s import bill but jewelry is a tiny fraction of the purchases.
The hike in import duty on jewelry had been a demand from the industry to ensure the viability of the domestic jewelry manufacturing, and avoid imports of cheaper jewelry from Thailand, Malaysia or elsewhere.
The Reserve Bank of India (RBI) has tightened rules for finance companies which lend against gold, a fast-growing business in the country, in line with the recommendations of an internal panel.
The RBI said lenders need to value the pledged gold at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association Ltd, to arrive at the loan-to-value ratio.
The ratio would remain at 60 percent for loans against jewellery.
“Currently, there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary and opaque,” the central bank said in a notification issued late on Monday.
Shares of gold-based lenders slumped, with Muthoot Finance Ltd falling 6.4 percent and Manappuram Finance Ltd down 3.7 percent on Tuesday.
The central bank also streamlined the process by which lenders auction gold when a borrower defaults, saying lenders need to declare a reserve price for the pledged ornaments.
Lenders would also need RBI approval to open branches exceeding 1,000. No new ones would be allowed without adequate storage facility for gold.
“Unbridled growth may not be in the overall interests of the concerned NBFC or the sector and there is a need for consolidation of the existing network,” the central bank said.
Muthoot Finance has 3,801 branches and Manappuram Finance has 3,293, according to their websites.
A Muthoot spokeswoman did not have immediate comment, while an official from Manappuram Finance was not immediately reachable for comment.Source: Reuters
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