In a bid to curb soaring craze for gold, the Reserve bank of India (RBI) has banned banks and non-banking finance companies (NBFCs) from extending loans against units of gold exchange traded funds (ETFs) and gold mutual funds (MFs).

Earlier this month, RBI had directed banks to make sure that the weight of any specifically minted gold coin didn't exceed 50 grams per customer; and the amount of loan against gold weighing up to 50 grams must be within the Board-approved limit.

Banks then asked the central bank whether they could extend loans against gold ETFs or MFs. In response, RBI declared that the restriction also applied for gold ETFs or MFs.

However, the impact of the restriction is expected to be minimal, as and MFs don't have a big exposure in this sector.

Sundeep Sikka, CEO of Reliance Capital Asset Management, also said that lending against gold ETFs wasn't extensive.

Commenting on the development, Sikka said, "The majority of investors coming into these funds were retail investors. On an industry-wide basis, I don't believe that the practice of using gold ETFs to obtain loans is of any significant scale."

As per figures compiled by the Association of Mutual Funds in India, gold ETFs had assets under management worth Rs 11,648 crore at the end of the March quarter.

Of the total Rs 11,648 crore worth of assets, companies accounted for Rs 6,345 crore; retail investors for Rs 3,124 crore; and banks, FIIs and individuals for the remaining amount.