Banks dealing in bullion are planning to form an association on the lines of the Indian Banks' Association (IBA) to take up the issues relating to gold trading in India, including benchmarking rates.
Around 13 bullion importing banks held a first meeting last month in this regard. "These banks have decided to join hands on the line of the IBA to take up the issues related to gold trading," said Rajan Venkatesh, director, marketing, Scotia Mocatta, the bullion division of Bank of Novascotia.
There are issues including benchmarking of gold prices for common man and problems related to sales tax, octroi and regulations which need to be taken up as joint efforts by banks dealing in bullion, he added.
Currently there is no benchmark rate for gold available in India as the Bombay Bulllion Association (BBA) has been barred by the Monopoly Restriction and Trade Practices Commission from doing the same.
"There is no benchmark gold rate in India. Retailers and even common man find it difficult in the absence of any reference rate," said Narendra Gupta, vice-president and head of commodities trading, ICICI Bank.
Even the Reserve Bank of India, which earlier used to take BBA rate as reference, is now finding it difficult, sources said.
Another reason for forming such an association is that majority of the bullion business has now shifted from Gujarat to Mumbai due to a sharp reduction in sales tax in Gujarat.
"In Gujarat, the banks were competing for the bullion business which led to problems. In a bid to ensure that the trend does not get repeated in Mumbai, it is necessary that the banks themselves decide upon the profit margins and arrive at a reference rate for gold," a public sector banker said.
The banks that have joined together include State Bank of India, Bank of India, ICICI Bank, Nova Scotia, HSBC and ABN Amro.
In Maharashtra, the sales tax on gold has been brought down to 0.5 per cent plus the 10 per cent surcharge amounting to a total 0.55 per cent as against a total 3.20 per cent (inclusive of 1 per cent sales tax, 2 per cent turnover tax and 10 per cent surcharge).
The Indian gold market is different from that of the rest of the world. The primary differential characteristic being taxes. India is a net importer of gold at a huge margin and the custom's duty is $15.86 (Rs 25 per gram) per ounce of gold.
Another one per cent is levied by the authorised agencies and banks, which sell the gold to the bullion merchants. By the time taxes and fees are added in, Indian gold is one of the highest priced in the world.
India is the largest consumer of gold, with an annual consumption of 850 tonne. It imports nearly 70 per cent of its total demand and is determined by global rates.
But rising global prices has already affected the consumption pattern in India. Consumption of gold fell 40 per cent in the first quarter of 2002 to 149.8 tonne due to higher prices and more opening stocks, according to the industry-funded World Gold Council.
The country, which accounted for nearly 20 percent of world gold demand, imported 53 per cent less gold in the first quarter at 84.7 tonne, down from 182.1 tonne a year earlier.
Gold traders also said that prices were expected to rise further with increasing tension between India and Pakistan. This has hurt sales with consumers deferring purchases and monitoring the prices continually.
The rise was fuelled by a weak US dollar, jittery equity markets, security concerns, stable bank sales and a stop in renewing call and variable price sale contracts on a global level.
The metal, which quoted at around $308/309 an ounce a week ago, has become more attractive to investors outside the US after the dollar hit seven-month lows against the euro and five-month lows against the yen.
