India asks banks to make the best of sovereign gold bonds

MUMBAI/NEW DELHI (Reuters) - India has urged banks to encourage potential investors to invest in the second tranche of its sovereign gold bond as part of efforts to mobilise stocks of the metal lying idle in homes and reduce expensive imports.

India is the world's second-biggest consumer of gold after China and the country's insatiable appetite means imports accounted for more than a quarter of its trade deficit.

In a bid to reduce the economically crippling imports, Prime Minister Narendra Modi launched the much-publicised scheme to tap a pool of more than 20,000 tonnes of gold lying idle in homes and temples across the country.

Under the scheme, gold can be used to buy eight-year bonds that pay interest and cash at redemption. The gold is melted down and sold to domestic jewellers in a bid to reduce the need for gold imports.

India will issue the second tranche of gold bonds on Feb. 8, offering an annual interest rate of 2.75 percent to domestic investors, India's central bank said in a circular (http://bit.ly/1Q8aUit) on Thursday.

Assessing the preparedness of banks before the second tranche launch, Finance Minister Arun Jaitley said: "This is an attractive opportunity for investors."

Applications for the bonds will be accepted from Jan. 18 to Jan. 22 and the bonds will be sold through banks, Stock Holding Corp of India Ltd and designated post offices.

The first tranche of the sovereign gold bond fetched 915.953 kg of the metal, valued at 2.46 billion rupees ($36.5 million), a government statement said.

India consumes up to 1,000 tonnes of gold per year to make jewellery, offer to deities or as a hedge against inflation.

($1 = 67.37 rupees)

(Reporting by Karen Rebelo in Mumbai and Mayank Bhardwaj in New Delhi; editing by David Clarke)