A.P. (DIR Series) Circular No. 34
February 18 , 2005
All Scheduled Commercial Banks which are Authorised Dealers
in Foreign Exchange
Import of Gold on Loan Basis – Tenor of
Loan and Opening of Stand-By Letter of Credit
Attention of Scheduled Commercial
Banks, which are authorized dealers in foreign exchange, is invited to our A.D.
(G.P. Series) Circular No.7 dated March 6, 1998 and A.P.
(DIR Series) Circular No.2 dated July 9, 2004 wherein nominated agencies,
approved banks, Export Oriented Units (EOUs) and Units in Special Economic Zones
(SEZs) were permitted to import gold under different arrangements.
2. Attention of Authorised Dealers
(ADs) is also invited to para 4.77.2 and para 4.77.3 of the Foreign Trade Policy
(FTP) 2004-09 of the Government of India, which states that, 'the export has
to be completed within a maximum period of 60 days from the date of release
of gold on loan basis', and that, 'The exporter shall have the flexibility to
fix the price and repay the gold loan within 60 days from the date of export'.
The Government has now, vide Public Notice No.28 / 2004-09, dated December 1,
2004 issued by Department of Commerce, Ministry of Commerce & Industry,
Government of India, enhanced the period for fixing the price and repayment
of the Gold Loan to 180 days from the date of export. As a result the maximum
period of gold loan becomes 240 days (i.e. 60 days for manufacture and exports
+ 180 days for fixing the price and repayment).
3. Banks may note to comply with the
(i) Nominated agencies / approved
banks can import gold on loan basis for on lending to exporters of jewellery
under this scheme. On the other hand EOUs and units in SEZ who are in the
Gem and Jewellery sector can import gold on loan basis for manufacturing and
export of jewellery on their own account only.Accordingly it is clarified
that the maximum tenor of gold loan, would be as per the Foreign Trade Policy
2004-2009, or as notified by the Government of India from time to time in
this regard, i.e. 240 days at present, as per the FTP and Public Notice No.28/
2004-09 dated December 1, 2004.
(ii) The maximum tenor of gold
loan would be as per the Foreign Trade Policy 2004-2009, or as notified by
the Government of India from time to time in this regard. The same is 240
days at present, as per the FTP and Public Notice No.28/ 2004-09 dated December
(iii) ADs may open Standby Letters
of Credit (SBLC), for import of gold on loan basis, where ever required, as
per FEDAI guidelines dated April 1, 2003. The tenor of the SBLC should be
in line with the tenor of the gold loan. It may be noted that the SBLC can
be opened only on behalf of entities permitted to import gold on loan basis,
viz. nominated agencies and 100% EOUs/units in SEZ who are in the Gem and
Jewellery sector. Further, the SBLC should be in favour of internationally
renowned bullion banks only. ADs can obtain a detailed list of internationally
renowned bullion banks from the Gem & Jewellery Export Promotion Council.
All other existing instructions on import of gold and opening of Letters of
Credit, with usance period not exceeding 90 days, will continue to be applicable.
(iv) ADs must maintain
adequate documentation with them to uniquely link all imports with the SBLC
issued for the import of gold on loan basis.
4. These guidelines are issued from
the foreign exchange angle only under the provisions of FEMA, 1999 and should
not be construed to convey the approval by any other statutory authority or
Government under any other existing laws/regulations. If further approval or
permission is required from any other regulatory authority or Government under
the relevant laws/regulations, the concerned entity should take the approval
of the agency concerned before effecting the transaction.
5. ADs may bring the contents of
this circular to the notice of their constituents and customers concerned.
6. The directions contained in this
circular have been issued under Section 10 (4) and Section 11 (1) of the Foreign
Exchange Management Act (FEMA), 1999 (42 of 1999).
Chief General Manager