"Indian Banks Seek RBI Policy Framework for Silver Metal Loans Amidst Growing Export Demand"

According to a report in The Economic Times, banks in India have approached the Reserve Bank of India (RBI) to establish a policy framework for silver metal loans, similar to the existing gold metal loans. The increased growth in silver exports, which rose by approximately 16 percent in the past year, has led jewelry manufacturers to request credit from banks for silver procurement and jewelry manufacturing.
The banks have raised this issue with the RBI in a meeting, citing the significant demand for credit in the silver sector. Silver exports have reached around Rs 25,000 crore, indicating the potential for further growth in this industry.
The existing RBI rules for gold allow nominated banks to import gold and provide gold (metal) loans to jewelry exporters and domestic gold jewelry manufacturers. These loans are repaid in rupees equivalent to the value of the borrowed gold, with the option for borrowers to repay a portion of the loan in physical gold.
Bank executives have highlighted that silver jewelry manufacturing carries similar price and operational risks as gold jewelry during the manufacturing process. They believe that guidelines from the central bank will ensure compliance with existing regulations by manufacturers and traders.
The Gem Jewellery Export Promotion Council (GJEPC) data shows that silver jewelry exports increased by 16.02 percent during FY23 to Rs 23,492.71 crore compared to the previous year.
The global demand for silver is expected to reach a new high of 1.21 billion ounces in 2022, representing a 16 percent increase from 2021, according to the Silver Institute. This anticipated growth is driven by factors such as the global shift towards a greener economy, investments in decarbonization and electrification projects, and the application of silver in electric vehicles.
The supply deficit for silver has been widening over the past decade, and in 2022, it experienced a sudden spike of over 300 percent compared to 2021, leading to increased bullishness in the market. The demand outlook for silver remains solid due to the global green energy push and increased industrial demand. Factors such as China’s reopening, the Federal Reserve’s stance, and global economic growth are expected to be key drivers of silver prices going forward, as stated by Ravindra V. Rao, VP-Head Commodity Research at Kotak Securities Ltd at the beginning of the year.