New Delhi, Aug 18: Finance Ministry is considering a proposal for allowing banks and financial institutions to trade in commodities markets. "Presentations have been made by market intermediaries to RBI and Finance Ministry for allowing banks and FIs to trade in commodities market. The government is considering the proposals," official sources told here.
Banks can take a maximum exposure of 5.0 per cent of their advances in equities market. Although they are also allowed to import and sell gold, banks are not yet allowed to invest in commodities market as such.
There is also a proposal with the government in allowing foreign institutional investors (FIIs) registered with reserve bank to take part in commodities trade, they said.
Some of the FIIs are very active in commodities markets abroad and are eyeing the Indian markets as well.
At present, banks, FIs and FIIs can invest in only equity and debt markets. While equity and debt constitute major chunk of their portfolios, commodities are also being eyed in the wake of sharp movements in prices of gold in recent times.
The move to involve banks, FIs and FIIs in commodities market can be seen in the light of international experience where institutional investors play a lead role in price determination of many items including gold and silver.
The commodities market in developed nations is three times bigger than the equities market, sources said, adding this is bound to happen in India as well considering the huge agrarian market.
Bureau Report