Banks not following RBI directive on gold margin calls: Mehrasons

Amid spreading coronavirus and subsequent lockdown, borrowers of a gold metal loan (GML) are facing excessive heat as the price of the yellow metal has risen astronomically, triggering margin calls that need to be fulfilled.

The Reserve Bank of India (RBI) has prescribed the tenor of a GML to be of 180 days.

"Contracts that have fallen due during this period or are due immediately after will create a flux in the business as these GML contracts will be forcibly converted by banks to higher interest-bearing working capital limits," said Ajay Mehra, Managing Director of Mehrasons Jewellers.

While the RBI announcement has mentioned that banks may defer such payments which are due, many banks are choosing not to extend this on the grounds of lack of clarity. "Once again, the spirit of the announcement made by the RBI seems to have been overlooked," he said.

Borrowers of the GML are facing another problem with the current method of renewing a GML which has been created by the high import duty on gold.

As such, the market rate of gold is lower by three to five per cent than the price of officially imported gold.

Renewing a GML through the current method subjects the borrower to this loss, which is unprecedented and is threatening the very existence of compliant jewellers in the country," said Mehra.

"This can simply be resolved if the method of renewing the GML is done on paper without the need to import gold. It will also help alleviate the current account deficit through the reduction of unnecessary gold imports," he said.

Mehra called for a complete waiver of interest on all loans from banks and non-banking finance compes during the lockdown period to help stem industry losses.

He also called for reduction of gold import duty from 12.5 per cent to 2 per cent as the yellow metal is currently available in local markets at cheaper rate than legally imported. "This will help compliant jewellers and the move is needed urgently."

( With inputs from ANI )