DBOD.No.IBS.BC.18/23.67.001/97-98

March 4, 1998

Phalguna 13, 1919 (Saka)

The Chief Executives of the Banks nominated to import gold/silver

Dear Sir,

Import of God/Silver

Please refer to our Circular DBOD. No. IBS. 1410/23.67.001/97-98 dated 1 January 1998 on the subject mentioned above. Some of the banks have sought clarification as to whether the gold imported under the authorisation given to them by the RBI under the liberalised import policy, will qualify as an eligible asset for SLR purposes. It is clarified that under Section 24 of the Banking Regulation Act, 1949 gold held by a bank on its own account will qualify as an eligible asset for meeting SLR requirements.

2. Further, we advise that taking up an open position in gold can expose a bank to price risk. Therefore, banks may lay down with the approval of their Boards, prudential limits on taking open position in gold and also obtain the specific approval of the RBI for such limits. It is clarified that banks keeping open position in gold should also maintain Tier-I Capital to the extent of 5% of the open position limit (as in the case of forex open position), in addition to the existing Capital Adequacy requirements specified by RBI.

3. Banks are advised that entering into any forward deal in gold is prohibited under the Forward Contract Regulation Act, 1952.

Yours faithfully,

(Devaki Muthukrishnan)

General Manager