The finance ministry and the Reserve Bank of India have expressed concerns over the high demand for gold in the country as it is impact the balance of payment situation in the country.

The Reserve Bank of India (RBI) has placed the restriction on the banks with an aim to curb gold imports and reduce the large Current account deficit of the government. The RBI has said that the high CAD is the biggest risk to the Indian economy at present and hinted that if the worrying trend continues then the monetary policy might be reversed.

Banks will now be only allowed to import gold on a consignment basis to one meet the demand for exporters of gold jewelry, the central bank said in its annual monetary statement today. It said that the majority of the import by banks is on a consignment basis that does not require the banks to fund the purchases.

The finance ministry has now increased the import duty the metal to 8 per cent that would result in an increase of 10 per cent in retail prices in the country. Finance minister P Chidambaram has also asked the banks to discourage its customers from buying gold this year.