Monday, November 26th 02:52 PM IST

India central bank to promote alternatives to physical Gold

# RBI  # India gold  # NBFC  

Indias central bank panel is looking at offering annuities to pensioners against an individual's owned gold.

NEW DELHI(BullionStreet): After banned banks from issuing loans to buy gold, world's top gold consumer India's central bank, the Reserve Bank of India (RBI) said it will soon release a report on gold backed financial products.

According to central bank Deputy Governor Subir Gokarn, the report will also include alternatives to physical gold ownership or derivatives that require financial institutions to back up certificates with 100% underlying gold.

The RBI will focus on four categories of gold-backed instruments that will replicate the returns on gold investments and also offer a hedge against inflation in an uncertain and slowing economy.

Modified gold deposit scheme is measured in terms of physical quantity of gold deposited and not tied to the form in which it is deposited.

In demat gold linked account, the gold invested will be hedged in the international market by the bank concerned.

The third type of instrument will be similar to the systematic investment plan of mutual funds, requiring investments at regular intervals.The fourth product will be akin to reverse mortgage and will target senior citizens.

Indians have traditionally been huge buyers of physical gold, mainly for jewelry, and the country has historically been the world's top importer of the metal.

The central bank panel is looking at offering annuities to pensioners against an individual's owned gold.

Another possibility would be allowing financial institutions to issue gold certificates with the underlying metal being kept abroad and issuers wouldn't necessarily have to hold 100% of the gold represented by the certificates.

Meanwhile, a top official of India's leading bank, the State Bank of India (SBI) urged the central bank to allow banks to enter gold trade as such a move could improve liquidity in the system, increase supply of the metal, and bring down imports.

At present India won't allow banks to trade on the commodities market, including in gold, as the regulator and the government fear their entry could cause inflation to spike.

India's current account deficit, as a proportion of gross domestic product, was 3.9% in the April-June period, outside the RBI's comfort zone of 2%-3%. India doubled the import duty on gold to 4 percent earlier this year.

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