Gold & Silver

Allow banks to trade in bullion, says World Gold Council

Suresh P Iyengar Mumbai | Updated on October 31, 2019

File Photo of Somasundaram PR, Managing Director, World Gold Council.   -  BusinessLine

WGC submits report on roadmap to form bullion bank

The World Gold Council (WGC) has suggested the government to allow Indian banks to trade and facilitate trading in physical bullion and its derivatives to bring transparency in the bullion trade.

In a report ‘The need for Bullion Bank in India’ submitted to the government, the Council has suggested that banks with proper checks and balances should be given flexibility for launching innovative gold-backed products to attract consumers investments.

The Council believes launch of bullion bank will bring in much needed transparency in bullion trade, boost exports and ease credit flow to the sector.

Somasundaram PR, Managing Director, World Gold Council told BusinessLine that bullion banks across globe build greater trust through the gold value chain, drive efficiency, provide liquidity, promote transparency and support price discovery.

Bullion trading

London and New York have a long history of bullion trading, but Singapore and Shanghai markets have emerged as strong players in last 15 years. In 2017, the revenue from global bullion banking operations was estimated at $1.5-1.8 billion. Being the second largest market for gold jewellery, India leaves much of this potential on the table. Central banks play a key role as regulators, liquidity providers and custodians to bullion bank, he said.

In India, Somasundaram said, RBI should allow banks to buy back the gold what they sell. Jewellers should be allowed to take bullion on loan from banks and repay it back in gold. In this process, the currency risk is completely eradicated and the demand for dollar from the jewellery trade will be reduced while it earns much-needed forex for the country.

With proper incentives, banks can manage gold monetisation scheme and circulate the same gold among jewellers, thus reducing gold imports, he said. In all, bullion banks manage five key risks including liquidity, interest rate mismatch, credit, market and operational risks.

To start with, regulations need to be flexible enough to encourage retail participation and product innovation, but robust enough to ensure effective risk management.

A combination of risk limits, wider operation and proper management controls would help to manage associated risks. Regulatory guidelines would enhance banks’ risk management processes from launch and help build systemic trust in the ecosystem.

Bullion banking requires extensive expertise and industry knowledge. In areas such as risk, finance and operations, Indian banks could consider entering into joint ventures or alliances with global banks for knowledge transfer, said the Council.

Published on October 31, 2019

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