A working group of the Reserve Bank of India (RBI) has recommended establishment of a gold bank as a `backstop facility' to offer refinance to institutions that lend against the precious yellow metal.

The recommended backstop facility could help mobilize non-official gold holdings, and direct them into a centralized pool and organize them in a productive manner. The move could also help in pooling idle gold.

As per some estimates, nearly 300 tonnes of scrap gold enters the economy per year.

Suggesting the setting up of a gold bank, the group underlined, "It would be worth trying the existing supplies of scrap gold in the country into the financial system, so that the unproductive nature of gold asset is turned into a financially productive medium."

The gold bank or the gold corporation could also be assigned with the task of handling India's gold reserves. As on December 21, the country's gold reserves stood at $27.8 billion.

The group, under the chairmanship of K U B Rao, also suggested several measures to make the gold finance sector more transparent.

It suggested that non-banking finance companies (NBFCs) should take into account only the price of gold and not the charges of jewellery making and other taxes while determining the value of the metal.

Other measures include increasing LTV cap from existing 60 per cent to 75 per cent, standardizing calculation of 'value' in LTV, and giving loans above Rs 2 lakh only by cheque.