A notification allowing banks to deal in futures trading of gold was issued by the department of consumer affairs on Thursday.

Gold was not included for hedging under the Forward Contracts Regulation Act which governs forward contracts in commodities. The consumer affairs ministry's notification follows clearance from the law ministry earlier this week.

Five commercial banks--State Bank of India (SBI), Canara Bank, Indian Overseas Bank (IOB), Corporation Bank and Allahabad Bank--are keen on launching the scheme.

These banks proposed to give 2.75 per cent to 3.5 per cent interest rate per annum on three- and five-year deposits of gold from the public. Gold jewellery is also proposed to be covered under the scheme.

The Gold Deposit Scheme was one of thefeatures of the budget for the current financial year presented by finance minister Yashwant Sinha in February last.

Under the scheme, idle gold from households and various charitable and religious institutions are to be mobilised. Against these deposits, selected banks will issue interest bearing certificates or bonds. On maturity of the bonds, the repayment is proposed to be made in bar gold.

As per the government's proposal, idle gold from households and various charitable and religious institutions are to be mobilised under the scheme. In tune with the proposal, only selected banks would be permitted to accept gold deposits and issue interest bearing certificates or bonds, which on maturity could be reclaimed in gold.

The banks also propose to have a minimum deposit of 500 gms gold under the scheme and further deposits would be in multiples of 50 gms.

Despite the Government not proposing to include jewellery in the scheme, banks have argued that only the inclusion of jewellery could ensure itssuccess.

The three- and five-year tenures have been proposed for the scheme to ensure that depositors do not resort to arbitrary withdrawal of the gold deposit.

The jewellery, which would be melted on deposit, repayment after maturity would be in the form of bar gold.

In May, The RBI had permitted Indian corporates to hedge exposures to bullion prices arising from export commitments in London Bullion Market (through the London Bullion Market Association approved brokers), besides recognised international exchanges.

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.