After the Rs 100-crore plus bullion scam that emerged last month, involving pay-orders from the co-operative banks, this was the first meeting of the RBI officials with the concerned bank representatives.

The RBI and bullion banks' meeting comes at time when majority of the bullion banks operating out of Ahmedabad have `temporarily' stopped their bullion operations, which they maintain is for consolidation purpose.

In the absence of bullion banks operations, the gold required by the country's bullion capital is said to be met out of Jaipur, Delhi and partly from Mumbai, which is a bit costlier than from the other centres.

Present at Tuesday's meeting, among others, were the RBI's general manager (Department of Banking Operations and Development) JG Gupta and representatives of ABN Amro, Standard Chartered, Bank of Nova Scotia, State Bank of India, Bank of India and Allahabad Bank.

While the RBI officials were not available for comments, sources in the banking industry confirmed the meeting. "The RBI wanted to know from each of the bullion bank (operating in Ahmedabad) what risk assessment procedures were being followed to deliver gold to buyers, against pay orders or otherwise," said a bullion bank executive who attended the meeting."Also, the RBI wanted to know on what basis the bullion banks accepted pay orders of one co-operative bank for delivering gold and not accepted the same from others.

Also, one of the most important aspects in bullion trading among banks is fixing the price of gold at the time of delivery. Currently, the bullion banks are supplying gold to their clients at an unfixed rate, which is billed and allowed to be fixed at a later date at mutual convenience.

This lacuna, is at the core of the whole bullion scam and has been utilised to the hilt by both the concerned bullion banking officials and also their preferred clients. It is this loophole which is expected to be plugged out soon by the apex bank, by making it mandatory for the banks to sell gold fixed only at an international price, neither leaving any room for price manipulation in the billing nor forcing banks to run the risk of price variations between the time of selling gold and actually billing it later on.

Moreover, for various reasons, the bullion business in the country, and more so in Ahmedabad, had to resort to pay-orders because the concerned banks had refused to accept cash, which, given the business of gold, runs into millions of rupees for a single deal on any given day.

It is therefore, feared among the bullion banking circles that RBI might tighten up some of the aspects of dealing in pay-orders for the gold deliveries.

"The RBI seems to be toying with the idea of banning the pay-order business altogether," said another participant in Tuesday's meeting. "However, this would almost kill the bullion business as bullion players are cash players and for obvious reasons banks don't accept cash."

Said a third participant, "What is necessary in the whole affair is that every bank has to be vigilant on its own risk assessment and bullion operations and take all the necessary precautions before delivering gold to the buyers. Once this is done, it boils down to the integrity of the concerned bank's official, who is expected to follow the internal guidelines. If he is found to have digressed from these guidelines, he should be punished severely."

It remains to be seen how the RBI takes the deliberations at Tuesday's meeting. However, bank executives attending the meeting were of the opinion that `undue tightening of the bullion trading norms would make things extremely difficult to the extent that it might totally hamper the business altogether.'