Reliance Capital Ltd., the financial services company owned by Indian billionaire Anil Ambani, has stopped sales of gold as the world’s biggest consumer of the metal tightens import rules to curb demand that’s contributed to a record current-account deficit.
Reliance will suspend sale of gold in physical form as well as an investment product, the company said in an e-mailed statement. It has also stopped gold loans facility and halted new subscriptions in its gold savings fund.
India, grappling with a record current-account deficit, partly due to a surge in gold imports, has tightened import and financing norms in a bid to cut purchases. Finance Minister Palaniappan Chidambaram appealed to Indians to “resist the temptation to buy gold,” saying reduced imports may help tackle the current-account gap and the weakness in the rupee.
“Investment demand has come off a bit,” Gnanasekar Thiagarajan, a director at Commtrendz Risk Management Services Pvt., said by phone. “Demand will pick up once there is stability in the international prices so the move by Reliance is not a cause for worry for the industry and will not reflect on other companies.”
Imports surged in the last two months as buyers thronged shops for ornaments, coins and bars after bullion entered a bear market in April. The shortfall in the current account, the broadest measure of trade, was $32.6 billion in the last quarter of 2012 and is the biggest risk to the $1.9 trillion economy, according to the central bank.
The rupee has dropped 8.5 percent this year making it Asia’s worst performing currency.
Reliance Capital’s assets under management in its gold savings fund were 29.26 billion rupees in the financial year ended March 31, and coin sales were nearly 5 metric tons, the company said.
India’s assets under management in exchange-traded funds backed by physical gold fell for a second month in May to 105.8 billion rupees from 106.3 billion rupees a month earlier, data from the Association of Mutual Funds in India showed on June 10. Assets have declined from a record 120.6 billion rupees in January, it said.
“There is a genuine problem with gold and the flows have come down,” R.S. Srinivas Jain, executive director and chief marketing officer of SBI Mutual Fund, which also manages a gold exchange-traded fund, said by phone.
India, which allowed trading in gold ETFs in 2007, currently has 14 such funds.