40 pc cash margin must for gold imports

In order to check bloated gold imports that have alarmingly widened the country´s foreign trade deficit, the Nepal Rastra Bank (NRB) has instructed financial institutions to issue letter of credit (LC) for the purpose of gold imports only against 40 percent cash margin.

The directive issued on Friday also barred financial institutions from issuing loans to importers for the purpose of managing cash margin required for issuing LC for importing gold. "The new directive has compelled gold importers to manage at least 40 percent of total import value in cash, which will make gold import business costlier," said a banker, preferring to be unnamed. Earlier, there was no specific rule over the ratio of cash margin while issuing LC for gold import.

That would depend upon the creditworthiness of clients, but generally banks would demand around 10 percent cash margin, said the banker. The directive further said that newly introduced 40 percent cash margin directive is applicable while issuing normal LC, standby LC and bank guarantee for the gold imports.

Earlier, top government officers including the finance secretary had stressed the need for curbing gold imports, stating that swollen gold imports were one of the major factors for record Rs 20.5 billion deficit in the balance of payment.

The total gold imports of the country during the first four months of the current fiscal year was stood at Rs 19.25 billion where as it was just Rs 7.17 billion last year and Rs 2.1 billion in the previous year. Experts attributed the increased speculative investments made on gold following the crash of stock market was the principal reasons for the soar in imports. Concerned government officials informed myrepublica.com that gold imports in this fiscal year´s fifth month alone was Rs 7 billion, taking the first five months´ total gold imports to Rs 27 billion.
Source:Republica