Certain amendments will make Gold Metal Loan a robust financial product

Gold Metal Loan (GML) is a mechanism under which a jewellery manufacturer borrows gold metal instead of rupees and settles the GML with the sale proceeds obtained. GML can be availed for 180 days in case of domestic jewellery manufacturers and for 270 days in case of exports.

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The Gold Metal Loan facility was first put into place in 1998. It was abruptly suspended in May 2013, but has now been reinstated. However, very few banks have reinstated this facility after it was stopped in 2013. The 2 or 3 banks that have commenced the GML, have hiked their rates by over 200 basis points even though international gold lease rates have declined.

How GML is sanctioned

Banks that are nominated to import gold as per extant instructions of RBI, may extend Gold (Metal) Loans to domestic jewellery manufacturers, (who are not exporters of jewellery) for non-export purpose and also to the jewellery manufacturers and exporters. Gold (Metal) Loans can be sanctioned only to gold jewellers, who are themselves manufacturers of gold jewellery. The jewelers who have borrowed under GML scheme cannot sell the gold to any other party to manufacture jewellery. The Loans provided by banks for the domestic jewellery manufacturers should not exceed 90 days. Banks are required to ensure end-use of gold loans to jewellery manufacturers and adhere to KYC guidelines. Further it is necessary to obtain adequate margin and collateral security to the bank finance in view of the volatility of the gold prices all the time.

Current Scenario