BANKS SEEK RBI INTERVENTION FOR SILVER LOAN POLICY AND GUIDELINES

16th June 2023

Banks in India have approached the Reserve Bank of India (RBI) to establish a policy framework and guidelines for silver metal loans, following a significant increase in silver exports over the past year. With the surge in demand for silver, jewellery manufacturers have expressed the need for credit to procure silver, silver articles, and support jewellery manufacturing.

The request to the RBI stems from a meeting held by banks last month, during which the issue was raised in light of the substantial growth in silver exports, estimated at around 16 percent. Industry sources revealed that silver exports reached approximately Rs 25,000 crore, highlighting a significant demand for credit within this sector.

Silver, a precious metal with extensive industrial applications, is influenced by trends in both gold and industrial metals. As countries globally embrace greener economies, investments in decarbonisation and electrification projects are expected to continue growing in the coming years, further driving the demand for silver.

Currently, RBI rules enable nominated banks to import gold, and these banks, as part of the Gold Monetisation Scheme, 2015, can provide gold (metal) loans to jewellery exporters and domestic gold jewellery manufacturers. The loans are repaid in Indian rupees, equivalent to the borrowed gold’s value. Additionally, banks may offer borrowers the option to repay a portion of the loan with physical gold in lots weighing one kilogram or more.

Addressing the similarities in price and operational risks between silver and gold jewellery manufacturing, a bank executive emphasized the necessity for RBI guidelines. Such guidelines would ensure compliance with existing regulations by manufacturers and traders, mitigating any potential violations.

Recent data from the Gem Jewellery Export Promotion Council (GJEPC) revealed a notable 16.02 percent increase in silver jewellery exports during FY23, amounting to Rs 23,492.71 crore, compared to Rs 20,248.09 crore in the previous year.

Earlier this year, the Silver Institute predicted that global silver demand would reach a record high of 1.21 billion ounces in 2022, reflecting a 16 percent growth compared to 2021. The global silver market is projected to experience a second consecutive deficit this year.

Over the past decade, the supply deficit for silver has gradually widened, but in 2022, it witnessed an abrupt surge of over 300 percent from the previous year, leading to increased market optimism.

Furthermore, the demand for silver is expected to soar due to its applications in electric vehicle circuits and interiors.

Ravindra V. Rao, CMT, EPAT VP-Head Commodity Research at Kotak Securities Ltd, stated that China’s reopening, the Federal Reserve’s stance, and global economic growth would be crucial factors influencing silver prices moving forward. The industrial demand for silver remains robust amid the global push for green energy.