WGC seeks greater participation from banks

The World Gold Council has urged the government to enable the Indian banking sector to participate more actively in retail gold banking and investment.

"Banks and other financial institutions should be allowed to trade on the commodity exchanges on a spot price basis. Banks should also be allowed to develop investment products linked to gold, such as, gold backed certificates and bonds. As India is a significant consumer of gold, 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 in the world," said Sanjeev Agarwal, managing director - Indian Subcontinent, World Gold Council.

He said that the government needs to take some positive steps to simplify the regulatory framework and business environment to support the objective of ensuring that India is an important centre for gold trade.

The Council has further proposed that Indian banks should be allowed to give gold loans which are presently 4-5 per cent lower than rupee loans.

This would help the jewellers reduce their working capital cost and hence reduce the cost of gold jewellery for the consumers. It will also allow the gold held in the gold savings and gold bond accounts to be deployed more productively.

Further, it is considered 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.

This would also ensure that the Indian investor is not incurring too high a cost that is applicable to savings in physical gold, bars and coins.

"When the Indian investor buys gold in the form of bars and coins to save for any financial emergency, he has to spend atleast 3 per cent above the gold price and in addition he spends on safekeeping and insurance. On the other hand, if banks offer an appropriate savings product linked to gold the cost of investment is estimated to come down to 1 per cent or lower." said Agarwal.