Bullion banking can help establish India’s position among leading global and regional markets
New Delhi, October 31: The Indian gold market faces multiple challenges such as lack of quality assurance, an unorganised marketplace and a weak positioning in international markets. Bullion banking is one of the key pillars that can address these challenges and help establish India’s position among leading global and regional markets, the World Gold Council says its latest report.
However, India will need to address a few developmental roadblocks in its efforts to build a bullion-banking ecosystem, namely – regulatory restrictions, lack of infrastructure and limited bullion-banking expertise.
A bullion bank facilitates the purchase, sale and use of standardised bullion or bullion-based derivatives. Similar to commercial banks, these financial institutions provide a range of products and services, centred around deposits, advances, sales and trading. Customers span the bullion value-chain, including central banks, miners, refiners, jewellers and investors, both retail and institutional.
“Bullion banks are and continue to be a key pillar of the market – they build greater trust across the gold value chain, drive efficiency, provide liquidity, promote transparency and support price discovery. India’s gold market is one of the largest in the world, but it lacks organisation, structure and trust. But that is beginning to change with numerous transformational initiatives underway. A robust bullion banking industry could support and accelerate that shift – inspiring trust, bolstering innovation and driving growth,” says Somasundaram PR, MD, India, World Gold Council.
“The timing for bullion banking reforms in India could not be more propitious. The Indian gold spot exchange is expected to launch in the near future, a key moment in the development and formalisation of the domestic gold market. Commercial banks need to be part of that journey, offering a range of bullion banking products and services to customers along the gold value chain and promoting higher value addition,” he further adds.
London and New York have a long history of bullion trading, but the Singapore and Shanghai markets have only emerged in the past 15 years. In 2017, the revenue from global bullion banking operations was estimated to be $1.5-1.8 billion. India leaves much of this potential on the table.
This report outlines the role that bullion banks play in leading gold centres around the world. It explains how India could develop a thriving bullion banking industry over the coming years to support its overarching economic ambitions, and enable gold to play a role in this journey. The report is based on deep discussions and research with banks, exchanges, refiners, vaulting services and regulators around the world, as well as key stakeholders in India.
“Indian commercial banks are ready to embrace bullion as an asset class. India can reap significant benefits, both within its gold market and across the wider economy with a robust bullion banking industry. The stage is set!” Somasundaram concludes.