India’s jewellery industry has proposed the creation of a regulated Bullion Bank as an institutional mechanism to reduce the country’s dependence on gold imports by mobilising idle domestic gold supplies.

The proposal was discussed during a meeting between Union Commerce and Industry Minister Piyush Goyal and representatives of the All India Jewellers and Goldsmith Federation, or AIJGF, according to people familiar with the discussions.

The industry body urged the government to create a formal framework under which domestic gold held by households, institutions and investment vehicles could be standardised, mobilised and lent back into the jewellery ecosystem, sources said.

“The Minister has agreed to consider setting up a consultation committee to examine the proposed Bullion Bank framework,” sources said. The committee, if formed, is expected to include representatives from the government, jewellery industry, bullion market, financial institutions and regulators.

AIJGF, the jewellery arm associated with the Confederation of All India Traders, is likely to meet the minister again within the next few days to further push its proposal.

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The proposed Bullion Bank would function as a central institution through which domestic gold could be pooled, standardised, settled and lent. On the supply side would be households and institutional holders of gold, while jewellers, exporters, refiners and manufacturers would form the demand side.

The broader aim is to securitise and monetise what the industry describes as India’s vast stock of “idle gold” lying with households and institutions, thereby lowering fresh import demand for the precious metal.

The proposal gains significance at a time when India is grappling with pressure on its currency and foreign exchange reserves amid elevated crude oil and gold prices.

Earlier this month, Prime Minister Narendra Modi urged citizens to defer gold purchases for a year to help reduce pressure on the rupee and the country’s import bill. Industry executives, however, argued that any prolonged slowdown in gold demand could hurt the livelihoods of nearly 3.5 crore people dependent on India’s gold and jewellery ecosystem.

As part of the proposed framework, AIJGF suggested integrating gold exchange-traded funds with the Bullion Bank structure.

According to the federation, Indian Gold ETFs currently hold large quantities of physical gold with custodians, much of which remains idle in vaults. Every incremental ETF inflow often creates fresh demand for imported gold, adding to import pressures, it said.

The federation proposed allowing ETFs to lend 20-30% of their physical gold holdings through the regulated Bullion Bank framework. Such lending should be over-collateralised, insured, audited and marked to market daily, while tenors should remain short and tightly risk-controlled, the industry body said.

To oversee the framework, AIJGF also proposed the creation of an inter-ministerial task force involving the Finance Ministry, Commerce Ministry and Ministry of Consumer Affairs, citing the need for coordinated regulation across multiple departments.

Courtesy : Money Control