Date:27/06/2004 URL: http://www.thehindubusinessline.com/2004/06/27/stories/2004062700060400.htm

Back Allow banks to develop gold-backed products: WGC

Our Bureau

Mumbai , June 26

BANKS and financial institutions should be allowed to trade on the commodities exchange on "spot price" basis, according to the World Gold Council (WGC).

In a pre-Budget memorandum to the Government, the council has suggested that banks be allowed to develop investment products linked to gold, such as gold-backed certificates and bonds.

As India consumes significant quantum of gold supply, with active trading the Indian banks will have an influence on the international gold market.

This will ensure that over time, based on the regulatory framework, India could develop as a major gold trading centre.

The people of India are estimated to hold over 13,000 tonnes of gold in the form of jewellery and physical bars and coins, which is estimated to be seven per cent of the global stock.

The value of the gold is an estimated Rs 7,00,000 crore, equivalent to the amount of savings and deposits held by individuals in the banking sector.

This is also 10 times the value of individual household investment in the mutual fund sector, said Mr Sanjeev Agarwal, Managing Director, World Gold Council (Indian Sub-continent).

Currently, the banking sector is not allowed to actively participate in retail gold banking and investment in spite of the fact it touches every household in the country, urban and rural, lower, middle and upper income

Indian consumers buy 20 per cent of the global gold supply every year; Rs 40,000 crore worth of new gold is bought by Indian householders across the country but the Indian financial sector has very little influence on the international gold market.

"The Government should quickly develop a spot market for gold in India."

Indians invest conservatively about Rs 5, 000 crore in gold bars and coins every year as an instrument of savings.

The entire savings is routed through the informal channel of jewellers and bullion dealers.

It is imperative that banks be allowed to offer gold-backed savings and investment products so that part of the flow of savings into physical gold remains in the more regulated banking sector.

Indian banks should be allowed to give gold loans, which is currently 4-5 per cent lower then rupee loans, WGC has said.