RBI panel proposes to set up gold bank
Move aimed at containing current account deficit
Mumbai, February 6
An RBI panel has revived the proposal of setting up a gold bank, or Bullion Corporation of India, to reduce imports of the metal - an idea mooted over two decades ago by the then Finance Minister Manmohan Singh.
"With considerable changes in policy related to gold over the past 20 years, the proposal for setting up a Bullion Corporation of India (BCI) needs to be revisited and activated," a committee, headed by KUB Rao, to study the issue of gold imports said in its final report.
Such a bank will reduce the gold imports, which are a major worry vis-a-vis the current account deficit, by greater activation of the domestic idle gold, it said.
The proposal to set up a gold bank was first floated by the then Finance Minister Manmohan Singh in his budget speech in February 1992. The idea was, however, never implemented.
The working group said there is a "strong intellectual support" for the idea at present and the banks' umbrella body, the Indian Banks Association (IBA), has also supported it.
Delaying or postponing the setting up of the BCI "is detrimental to the gold dynamics in the economy", it warned.
"Given the insatiable demand for gold from the Indian residents, there is a strong need for creating an institution to facilitate the activation of dealing in domestic idle gold and to provide liquidity and refinance to institutions/banks," it said.
The bank's functions will include acting as a 'backstop facility' to offer refinance of gold to institutions lending against the collateral of gold, issuance of gold bonds in lieu of collection of gold stocks, storage and safekeeping facilities for bullions and close coordination with other international bodies such as World Gold Council.
The group said initial capital for setting up the corporation can be contributed by the Reserve Bank and select commercial banks and institutions, and pegged the authorised capital at Rs 2,000 crore and the paid-up capital at Rs 1,000 crore.
Suggests cap on import of gold
Concerned over rising gold imports, a RBI committee today suggested limits on imports of gold by banks and other government agencies like MMTC and STC, which account for about 56 per cent of the total import of the precious metal.
"Setting value or quantum limits for canalising agencies and banks to import gold can also reduce the demand for gold. Such limits can be reviewed periodically," said a report of RBI's working group on gold loans.” PTI
Proposal revived after 20 years
The idea was mooted over two decades ago by the then Finance Minister Manmohan Singh
The bank will reduce gold imports by greater activation of the domestic idle gold
Initial capital for setting up the corporation can be contributed by the RBI and select commercial banks, institutions
Current account deficit touched a record high of 5.4 per cent in the July-Sept quarter last year
Gold imports in the April-December period stood at $38 billion. In 2011-12 fiscal, it was $56.5 billion