The comments from Khan come after the CBI quizzed him as part of its ongoing probe in the Rs 13,000-crore PNB fraud case.
The move to allow private trading firms to import gold under the 80:20 gold scheme in May 2014 was deliberated upon by Reserve Bank of India and due process was followed before notifying it, said former RBI Deputy Governor HR Khan.
He underlined that the decision was not taken in a haste.
Speaking to Moneycontrol, Khan said, “There was a government advice on the matter through a letter that was received via fax and was acted upon accordingly. The matter was also deliberated upon by RBI internally and the decision was not taken in haste…”
The comments come after the Central Bureau of Investigation (CBI) quizzed Khan on last Friday as part of its ongoing probe in the Rs 13,000-crore Punjab National Bank (PNB) fraud case, unearthed in February. Khan was the Deputy Governor at RBI when the 80:20 gold scheme circular was modified on May 21, 2014.
At that time, Khan was in-charge of foreign exchange management at the central bank and the RBI note was issued by him, while CD Srinivasan, the then Chief General Manager at RBI, had signed the circular.
Probing beneficiaries under 80:20 gold scheme
The CBI probe into the gold scheme was followed by the government’s statement that the agency would take action against people who relaxed gold import rules for star and premier trading houses.
Referring to the Comptroller and Auditor General (CAG) report, the government alleged that the relaxation of the gold import rules helped 13 entities make windfall gains to the tune of Rs 4,500 crore in just six months, by selling the yellow metal at a high premium of Rs 2 lakh per kg.
It was further alleged that after allowing only certain private players to import gold under the 80:20 scheme, some trading companies of the 13 private firms - including Mehul Choksi's firm Gitanjali Group - benefited from the high premium they charged buyers due to scarcity of the precious metal.
Overall, the 13 firms accounted for 40 percent of total imports, while Gitanjali Gems Ltd imported 400 kg of gold between June and November 2014, after which the 80:20 scheme was scrapped.
Khan added that he would not assume that the intent of the May 2014 circular was wrong, but pointed out that some companies may have taken undue advantage of the scheme.
Khan said, he was called by the CBI to provide a background of the 80:20 circular and the technical understanding of the instructions given in it.
“The questioning was not relating to the LoUs or FLCs, but the 80:20 gold scheme circular,” he added.
Last Thursday, the CBI had questioned four other RBI officials in the matter.
80:20 Gold Scheme
The 80:20 gold scheme, introduced in August 2013, allowed certain companies to import gold only if they exported 20 percent of the yellow metal in value-added form. It was meant to curb the increased import of gold and restrict India’s yawning current account deficit (CAD), which kept the rupee under pressure.
In May 2014 under the then UPA government, premier trading houses (PTHs) and star trading houses (STHs) were allowed to import gold under the scheme.
Khan said a thorough probe needs to be conducted into the matter, before coming to any conclusion.
Sources told Moneycontrol that the CBI was tracing the financial trail which allegedly shows that money raised through Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs) was routed through “front companies” to either purchase assets or pay off outstanding LoUs. “These front companies, which were beneficiaries of the money, were shown as importers by the accused,” a source said.
Overseas branches of several Indian banks credited funds into Nostro accounts of PNB based on the LoUs issued by the latter.
In latest developments, the CBI has issued non-bailable warrants against Nirav Modi and his uncle Choksi.
With a view to keep a closer watch on overseas transfer of funds or foreign exchange transactions, the RBI will now put in place a system wherein banks will have to report individual transactions under the Liberalised Remittance Scheme (LRS) on a daily basis to ensure that the individual remitter does not breach the limit of remitting USD 250,000 a year through transactions with multiple banks.