Banks’ share of gold imports have shrunk to 19% in 2020 against 40% in 2017

Suresh P. Iyengar | | Updated on: Dec 09, 2021

In the last five years, dore imports made up 30 per cent of total official gold imports due to lower duty

Banks’ share of gold imports have shrunk to 19 per cent in 2020 against 40 per cent in 2017 as the share of dore (unrefined gold) imports by refiners increase steadily.

Moreover, with bullion banks such as Nova Scotia exiting their precious metals business, many large bullion dealers who were previously clients of the banks, have set up their own refineries, said the World Council of India report on 'Bullion Trade in India'.

In the last five years, dore imports made up 30 per cent of total official gold imports due to lower duty. The number of refineries have increased from three in 2012 to 32 in 2020.

Currently, some 25-26 refineries are active, with a combined refining capacity of 1,200 to 1,400 tonnes.

Of these, 23 refineries imported dore in 2020 and the top five refineries accounted for over 70 per cent of India’s dore imports.

With lower duty on dore, the share of gold imports has increased from 11 per cent in 2014 to 29 per cent in 2020.

In last five years ending 2020, imports made up 86 per cent of India’s gold supply, while recycling accounted for 13 per cent and mining accounted for just one per cent.

Gold imports

Since the first duty hike in 2012, India has imported some 6,581 tonnes of gold, averaging 730 tonnes per annum.

Higher gold imports can have a negative impact on the country’s balance of trade and have, at times, led the government to implement measures to try to curb gold imports, said the report.

Somasundaram PR, Regional CEO, India, World Gold Council said the bullion industry has developed over the last three decades in India with significant addition to organised refining capacity and an LBMA accredited refinery.

Challenges remain on dore sourcing and organised trading which act as barriers to a more active role for banks and bullion trade in global trading and price setting. High taxes on bullion continue to be a strong incentive for the grey markets that constantly undermine all reforms to make gold liquid and mainstream, he said.

Gold market faces multiple challenges, such as a lack of quality assurance, the unorganised state of the market and lack of trust in international markets.

Bullion banking will be one of the key pillars to address these challenges and help establish India’s position among leading global and regional markets, said the report.

Banks could be encouraged to pursue product innovation and attract retail participation in the bullion market. With bullion banking, insurance companies could offer gold and gold futures products to customers.

Bullion banking can also increase liquidity for bullion trade through inter-bank lending and borrowing in both the local and the global bullion markets besides handling central bank bullion lending to commercial banks and other entities.

Published on December 09, 2021
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