Updated: 04/11/2020 12:45 PM IS
New Delhi [India]Apr 11 (ANI): Amid the spread of the coronavirus and its subsequent lockdown, gold metal loan (GML) borrowers are exposed to excessive heat as the price of the yellow metal has risen astronomically, creating margin calls that must be met.
The Reserve Bank of India (RBI) has set the duration of a GML at 180 days.
“Contracts due during this period or due immediately thereafter will transform the business as these GML contracts are forcibly converted by banks into higher interest-bearing working capital limits,” said Ajay Mehra, managing director of Mehrasons Jewelers.
While the RBI announcement mentioned that banks can defer payments due, many banks choose not to extend this due to lack of clarity. “Again, the spirit of the RBI’s announcement seems to have been overlooked,” he said.
GML borrowers face another problem with the current method of renewing a GML, caused by the high import duty on gold.
This means that the market price for gold is three to five percent lower than the price for officially imported gold.
Renewing a GML through the current method exposes the borrower to this loss, which is unprecedented and threatens the very existence of lawful jewelers in the country, “Mehra said.
“This can be easily resolved if the method of renewing the GML is on paper without the need to import gold. It will also help reduce the current account deficit by reducing unnecessary gold imports,” he said.
Mehra called for a full interest waiver on all loans from banks and non-bank financial firms during the lock-up period in order to contain the industry’s losses.
He also called for the gold import tariff to be reduced from 12.5 percent to 2 percent, as the yellow metal is currently available in local markets at a cheaper price than is legally imported. “This will help law-abiding jewelers and the move is urgent.” (ANI)