This is one of the move to kick off the proposed Gold Deposit Scheme as the gold accumulated through the scheme by banks trading in the yellow metal will have an effective means to hedge against the price fluctuations globally.

The scheme is likely to commence after certain other formalities and required permissions are given by the end of May.

In a circular to authorised dealers in foreign exchange, RBI has also permitted Indian corporates to use the Over The Counter (OTC) futures contracts based on average prices and cancel an options contract by entering into an opposite transaction with the same broker.

RBI has also allowed to use products involving simultaneous purchase and sale of options provided there is no receiptof premium either direct or implied.

However, the consequential manual amendments are to be issued separately. This is a step in the direction to make gold bond scheme more attractive to investors as well as traders (inclusive of banks permitted to import gold). According to finance secretary Vijay Kelkar there are still a couple of issues to be solved before the gold bond scheme is kicked off. These issues are likely to be solved in the next two weeks and notifications will be issued to pave the way for launching the scheme.

The government via RBI had last year permitted the Indian corporates to hedge for the non-ferrous metals, especially aluminium. The permission to hedge abroad for metals mostly imported into the country has become second in the series.

India has consistently been a leader in the gold market for several years. The appetite for the yellow metal is insatiable as far as India is concerned.

The list of 12 nominated banks which are allowed to import gold includes ABN Amro Bank,Allahabad Bank, Bank of Nova Scotia, Bank of India, Bank of Baroda, Canara Bank, Corporation Bank, Oriental Bank of Commerce, Indian Overseas Bank, Standard Chartered Bank and Dena Bank.

RBI's move to allow nominated banks to launch a gold deposit scheme is yet another step towards liberalising the domestic gold policy. In the last week of December the central bank allowed 12 nominated banks to retail gold in the domestic market and advance gold as loans to jewellery exporters.

Bankers are of the view that the gold deposit mobilisation scheme will revolutionise trading in the country and also help banks to source gold at a much cheaper rate from the domestic market. The banks have been importing the yellow metal at a marginally high cost from international agencies. The cost includes import duty (which has gone up from Rs 250 to Rs 400 per 10 grams of gold), withholding tax, price risk, transaction and administrative cost.

The RBI directive to banks said: Banks should make use of the `household gold'lying idle in the country for `productive purposes' by accepting gold from public as deposits and also buy it directly from the metal holders.

According to RBI, banks are the most suitable vehicle for mobilising gold available within the country. The World Gold Council has pegged the quantity of gold available in India at around 11,000 tonnes.

India imported 1,833 metric tonnes of gold worth over Rs 87,554.81 crore between 1994-97. Of these imports, a total of 1,042 metric tonnes of gold worth over Rs 49,806.76 crore was imported by NRIs while 465 metric tonnes worth over Rs 22,298.99 crore was through smuggling, the report estimates. In addition to these two routes, another 150 metric tonnes of gold worth Rs 7,169.97 crore was imported under the special import licences (SILs) while 61 metric tonnes worth over Rs 2,779.16 crore was imported under the open general licence by Indian banks on payment of duty in Indian rupees.

About 62 per cent of gold imports in 1997 was under SIL and was mainly effectedin the second half of the year. The fall in the import of silver, which too was allowed to be imported under the SIL scheme, brought down the SIL premium from 12 per cent at the beginning of the year to 6 per cent by the year-end.

However, re-introduction of the OGL, by designated banks on payment of import duty in Indian currency had made the route a dominant one for gold imports.

The most significant official route for import of gold has been the NRI channel which involves imports to the tune of over Rs 49,806 crore.