All the 12 banks which have been allowed to import gold by the Reserve Bank of India will factor into the price fluctuation risk arising out of volatility in the gold prices while working out the interest rate on gold advances to jewellery exporters under the gold loan scheme.

An RBI directive, issued on December 31, said: "The loan should be given only to jewellery exporters and interest charged to the borrowers should be linked to the international gold interest rate." This rate is linked to LIBOR and gold forward rates.

Bankers are quite bullish about the success of the gold loan scheme although they are apprehensive about fixing the right interest rates on advances.

At present,exporters pay about 7-7.5 per cent for importing gold. The cost includes a guarantee rate of 3-3.5 per cent from an Indian bank (varying between banks), 3-3.50 per cent as gold lending rate in the international market and 0.5 per cent on administrative, transaction and interest cost. The time lag--the time gap between placing an order and receiving the delivery-- also plays a role in determining the cost.

"As there are 12 banks which are currently fighting to capture the existing clientele, each bank will have to offer special innovative packages to woo the small fraternity of jewellery exporters," said an official of a nationalised bank.

Corporation Bank is the first bank to have launched gold related scheme like gold replenishment scheme and outright purchase scheme. The bank has already framed a gold loan scheme, which will be launched shortly after an approval from its board of directors.

Under the bank's replenishment scheme, exporters can procure gold from the nominated agencies only aftercompletion of exports. "As per the scheme, initially exporters will have to precure gold out of their own resources and process it. Only after exporting the finished goods, the exporter will get the gold used under replenishment scheme," said a Corporation Bank official.

Under the bank's outright purchase scheme, exporters purchase duty free gold from nominated agencies, process and submit proof of exports done.

"Under the gold loan scheme, exporters have to complete the exports within a maximum period of 120 days from the date of release of gold on loan basis," said the RBI circular, issued on December 31.

As per the RBI guideline, loan to jewellery exporters in India will be subject to capital adequacy and other prudential requirements. "Any mismatch arising out of gold borrowings and lendings should be within the prudential risk limit approved by the bank's board," it said.