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Gold: RBI allows banks to enter forward contracts

Reserve Bank of India has permitted authorised banks to enter into forward contracts for gold with their constituents, including exporters of gold products and trading houses.

The forward contracts could be in respect of the underlying sale or purchase and loan transactions in gold with the constituents, RBI said in a circular to all scheduled commercial banks authorised to deal in gold.

The tenure of such contracts should not exceed six months.

Banks should put in place appropriate risk management mechanism for the purpose, like hedging their position either with other authorised banks or through exchange traded and over-the-counter hedging products available overseas, it said.

RBI, in its October 5, 1999 circular, had permitted banks to enter into forward contracts in India for buying and selling of gold with only those banks, which were authorised by the apex bank to import gold.

These banks were, however, not permitted to enter into forward contract in gold with counter parties.

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