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Trade body prays for extension of Gold Metal Loan tenure by 90 days post August 31


MUMBAI: IBJA, the national trade body of jewellers, has requested the government to consider extending all Gold Metal Loan (GML) contracts by 90 days after the expiration of the moratorium ending on August 31, on concerns of mounting NPAs if this is not done. IBJA ‘s request comes amid a jump in gold prices and lack of consumer demand during the Covid-induced lockdown.

“If this extension is not permitted, all GML contracts would be crystalized and, thus, converted to the higher interest bearing Working Capital Limits, which attract an interest rate of 12-14% per annum (Interest on GML is 3-4%),” said Surendra Mehta, national secretary of IBJA. “This would prove to be a death knell for all the GML borrowers and make NPAs out of them, something that can easily be avoided.”

According to the IBJA, the Department of Economic Affairs and Department of Financial Services are actively considering the sanction of the GML in the weight of gold — against India rupees now — and to permit its rollover on paper, as has been recommended by the NITI Aayog Gold Report. The extension being prayed for would provide the required time within which to prepare and issue the necessary ordinance to enable the same.

“Doing away with the margin calls by sanctioning the GML in the weight of gold itself would be a huge step forward in developing the gold industry and in making India the global destination for gold,” said Mehta.

However, a private banking official engaged in the GML business said that the bank itself had back to back arrangements with overseas suppliers who leased them the gold. Thus any increase in gold rate would mean their having to square it off by buying gold in dollars from the international market. Any rise in gold or depreciation of the local unit would hit the bank unless it recovered the same from the end borrower.

The COVID-19 pandemic, said IBJA, has deeply impacted gold prices, which have shot up exponentially, triggering off margin calls of up to 55% of the loan taken, increasing the stress on GML accounts amid lack of jewellery demand .

The GML is a financial tool used by banks to lend gold Imported on consignment basis or accumulated under the Gold Monetisation Scheme, (GMS), and is extended at an interest rate of 3-4% per annum. The tenure is 180 days. The bank earns a commission over and above the rate at which gold is leased from the overseas supplier.


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