"With considerable changes in policy related to gold over the past 20 years, the proposal for setting up a Bullion Corporation of India (BCI) needs to be revisited and activated," a committee, headed by K U B Rao, to study the issue of gold imports said in its final report.
Such a bank will reduce the gold imports, which are a major worry vis-a-vis the current account deficit, by greater activation of the domestic idle gold, it said.
The proposal to set up a gold bank was first floated by the then Finance Minister Manmohan Singh in his budget speech in February 1992. The idea was, however, never implemented.
The working group said there is a "strong intellectual support" for the idea at present and the banks' umbrella body, the Indian Banks Association (IBA), has also supported it.
Delaying or postponing the setting up of the BCI "is detrimental to the gold dynamics in the economy", it warned.
"Given the insatiable demand for gold from the Indian residents, there is a strong need for creating an institution to facilitate the activation of dealing in domestic idle gold and to provide liquidity and refinance to institutions/banks," it said.
The bank's functions will include acting as a 'backstop facility' to offer refinance of gold to institutions lending against the collateral of gold, issuance of gold bonds in lieu of collection of gold stocks, storage and safekeeping facilities for bullions and close coordination with other international bodies such as World Gold Council.
The group also flagged the issue of scrapping gold, stating that almost 400 tonnes of it which enters the market every year does not lead to an appropriate price discovery.
The working group presented a concept paper for the setting up of the BCI with the backing of the RBI.
The group said initial capital for setting up the corporation can be contributed by the Reserve Bank and select commercial banks and institutions, and pegged the authorised capital at Rs 2,000 crore and the paid up capital at Rs 1,000 crore.
The RBI should hold 51 per cent of the corporation to begin, with the rest with financial institutions, it said, adding that the models of Discount and Finance House of India and Securities Trading Corporation of India can be followed.
It may have a non-executive chairman and a full time managing director appointed by the board who would act as the chief executive.