Story Highlight
– RBI eases gold metal loans for jewellery manufacturers.
– Loan tenor extended to 270 days from 180 days.
– GML expansion includes non-manufacturers for outsourcing.
– Relief for gems and jewellery sector amid high tariffs.
– Aims to improve competitiveness and liquidity for exporters.
Full Story
The Reserve Bank of India (RBI) is set to revise its gold metal loan (GML) policies, providing a potential boost to the jewellery sector amidst rising bullion prices. This initiative aims to extend GMLs to a broader range of stakeholders, including domestic jewellery manufacturers and gold jewellery exporters, facilitating outsourcing in jewellery production.
As part of a recent consultation document, the RBI has proposed increasing the loan tenor from 180 days to 270 days and granting banks greater flexibility to determine the terms. GMLs enable jewellery manufacturers to borrow gold rather than cash, with repayments made through the sale of jewellery.
“Current guidelines allow extension of GML to jewellery exporters and domestic jewellery manufacturers. It is proposed to allow GML to domestic non-manufacturers as well for outsourcing their manufacturing of jewellery,” noted the RBI in its statement. Originally launched in 1998 to support working capital needs of exporters using raw gold, the scheme was later adapted to include domestic manufacturers and gold sourced via the Gold Monetisation Scheme.
The RBI’s proposal seeks to further liberalise these loans, harmonising regulations for different borrower segments and enhancing operational flexibility for banks in formulating their lending policies. This move is particularly significant in light of the difficulties confronting the gems and jewellery sector, which has been adversely impacted by a hefty 50% tariff imposed by the United States, a key market for Indian exports. Additionally, domestic demand has weakened as gold prices have soared.
Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions and President of the India Bullion and Jewellers Association, highlighted the positive implications of the RBI’s proposal. He explained that broadening GML access and extending the tenor to 270 days would alleviate pressure on working capital and enhance credit flow within the industry. He noted that traditional bank lending has been hesitant due to increased inventory costs arising from elevated gold prices. By offering longer loan tenors, the RBI’s initiative could align better with jewellery manufacturing and export cycles, thereby reducing financing costs.
Kothari pointed out that countries such as Dubai and Turkey provide jewellers with flexible gold financing options featuring extended repayment periods, minimising operational disruptions and improving export competitiveness. Despite India being the second-largest gold consumer worldwide, the market has yet to establish a structured financing system for jewellers. Should the RBI’s reforms successfully bridge this gap, they could significantly enhance liquidity in the domestic market and bolster the competitive stance of jewellery exporters.