Mumbai: With India being one of the leading gold consumers, there is a need for bullion banking that will help provide liquidity, promote transparency and support price discovery, the World Gold Council has said.
"The bullion market in India is large and fragmented Bullion banks can help both small and large market participants to become more efficient, through the provision of essential bullion services," WGC said in a report 'The need for Bullion Bank in India' submitted to the government.
Commercial banks should be given more access to the bullion market, including gold spot and derivatives trading and should be encouraged to pursue product innovation and attract retail participation in the bullion market, it said.
The Reserve Bank (RBI) could work with commercial banks to assess how best to structure the domestic bullion banking industry, it added.
"Bullion banks continue to be a key pillar of the market they build greater trust across the gold value chain, drive efficiency, provide liquidity, promote transparency and support price discovery," it said.
In the report, submitted to the government, WGC has put the learnings from developed bullion banking markets globally as well as made recommendations involving all stakeholder's view to facilitating the growth of bullion banking in the country.
"We have expanded on the concept of bullion bank which exists in most western markets, including the UK, the US, Switzerland and also in China. These banks take bullion risks and also sell a lot of gold products," WGC managing director Somasundaram PR told PTI here.
He said London and New York have a long history of bullion trading, but the Singapore and Shanghai markets have only emerged in the past 15 years.
In 2017, the revenue from global bullion banking operations were estimated to be USD 1.5-1.8 billion and India leaves much of this potential on the table, the report said.
Similar to commercial banks, a bullion bank facilitates the purchase, sale, and use of standardised bullion, providing a range of products and services, centred around deposits, advances, sales and trading.
India currently has little interaction with global bullion banks, however, with its own bullion banking operations, it could play a larger and more influential role in the global market.
"Around 90 per cent of the gold consumed in India is through imports and the rest are from recycling. But with bullion banking, our dependency on imports will reduce and recycling will increase to 20-25 per cent. It will help in bringing a large part of the 24,000-25,000 tonne gold lying in lockers to the market," Somasundaram added.
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