According to the proposal, the council, along with the banks, will float an independent outfit to set up the refinery which will pave the way for smooth trading of gold derivative products such as deposit mobilisation and gold loan schemes.

At least five of the 12 nominated banks have evinced interest in picking up a stake in the proposed venture. The banks are State Bank of India, Bank of India, Corporation Bank, Canara Bank and Indian Overseas Bank. "Other banks are still considering the pros and cons of the proposal," said a source. The council is in the process of working out the modalities of the proposed venture.

The proposed entity will facilitate assaying to determine the purity of gold approved by the Bureau of Indian Standard (BIS), hallmark jewellery and perform the function of a refinery. The proposal was put forth before the Reserve Bank of India (RBI) at a high-level meeting earlierthis month.

The council has approached gold-trading banks to participate in the equity of the new outfit.

According to an official from a bank who attended the meeting, the initiative to form a separate entity has been taken by the WGC. According to the proposal, the member banks will have their representatives on the board of the new entity which will help the financial derivative products to take off. The WGC will function as a facilitating agency for smooth gold trading at the retail level.

The hallmark on gold will be similar to the ISI mark stamped on industrial products. The BIS Act of 1986 will be amended and certification of purity of gold will be in accordance with global standards.

According to a bank official, through the gold loan scheme and deposit mobilisation scheme, the central bank wants to tap at least a part of the country's 12,000 tonne idle gold reserves.

Floating the gold deposit scheme will not be an easy task as banks need to first put in place proper infrastructure foraccepting gold, senior bankers said. "At present, there are not many government-approved refineries. The Government of India mint will not be able to handle the pressure generated after the launch of the schemes," sources said.

The primary objective for launching such derivate products is to put the huge gold reserves of the country to productive use and reduce gold imports, and save the country's foreign exchange. "We must make productive use of gold... Over the last 15 years, the internal price of gold has come down from $400 per ounce in 1985 to about $285 per ounce now. We must convert our gold reserves into financial assets," sources said.

"In the financial year 1998-99, total gold imports into the country are likely to be around a record 700 tonnes. In monetary terms, this works out to $7 billion. To that extent, it has put pressure on the country's forex reserves," said an official with a nationalised bank.

Bankers are, however, sceptical about an early launch of the gold deposit schemes as theydo not have proper infrastructure to process gold into small equal denominations.