The objective behind floating a `locational swap' scheme was to transfer the country's gold reserves to the tune of 400 tonnes lying idle with the central bank to London Metal Exchange and earn revenue by leasing or trading in the international market.

``The scheme has turned out to be a non-starter as banks have not shown any interest in locational swap of bullion as swap can only be done at a few specified locations,'' said a banker.

According to sources, in the past six months, the central bank has not concluded even a single swap deal in bullion.

Through its `locational swap' scheme, the central bank wanted all the 12 nominated banks to buy gold from its reserve at a predetermined fixed rate based on maximum deals concluded during a specific period and credit the bullion in the central bank's London account. "This would reduce the banks transportation cost of importing gold and also help the central bank to transfer its bullion reserves from the domestic market to the international market and make productive use of the yellow mental," sources said.

The scheme failed as the banks were required to pay the import duty and taxes which were factored in while pricing the yellow metal. "The banks were not interested to bear the import duty and taxes," said industry sources.

According to sources, banks have not shown interest in swap deals as they are not sure about the mode of payment. ``At present, banks buy gold from the international suppliers on consignment basis and payment is only made after the transaction is over.'' Another grey area is whether it attracted import duty, sales tax or octroi.

Under the proposed scheme, the central bank aimed at selling bullion to banks in the domestic market and replenish the stock in its account in the international market. The exercise was aimed at augmenting the gold stock of the central bank held offshore.

As per the scheme, the swap deals involved two stages. At the first stage, the central bank was supposed to supply a certain agreed quantity of gold from its vault at Nagpur.

The second leg of transaction involved the central bank simultaneously buying an equivalent quantity of gold supplied by it to the nominated agency from the overseas suppliers of the banks.