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THE FOREIGN Investment Promotion Board (FIPB) has rejected the proposal of Bank of Nova Scotia to set up a wholly owned subsidiary for wholesale trading in precious metal commodities.

This follows objections raised by the Reserve Bank of India (RBI) and the department of financial services. As per existing policy, other than nominated agencies and banks authorised by RBI, no other organisation is allowed to import precious metals like gold.

The proposal had been deferred earlier by the FIPB following RBI objections and it had sought the views of the department of consumer affairs and department of financial services.

Subsequently, Bank of Nova Scotia had made some clarifications in its proposal since in the past FIPB has had some reservations in granting approvals to foreign investment proposals in the area of commodities broking. It reiterated that it does not seek to undertake commodities broking. It also withdrew the request made in its earlier proposal for permission to import and export precious metals as per the foreign trade policy. It stated that the new Indian subsidiary will make its purchases from the domestic market and will not import precious metals.

It will undertake wholesale trading and hedging in precious metal commodities including sale and purchase of gold, silver, platinum, palladium and base metals. It also proposes to trade in precious metal commodity derivatives through various commodity exchanges.

The department of financial services stated that it may not be appropriate to allow foreign investment by Bank of Nova Scotia in a wholly owned subsidiary.

RBI also opposed it as it involves trading and import of precious metals and FDI in commodity broking. RBI has taken the view that import of precious metals is allowed only through nominated agencies and banks authorised by the RBI. Further, it said that multi-commodity exchanges in India are in the initial stages of development and their regulatory involvement requires strengthening before foreign players are allowed entry.

In its comments, the department of consumer affairs said that if the wholesale trading and hedging is undertaken in futures exchanges outside India, the issue would fall under regulatory purview of the RBI. However, in case these activities are proposed to be carried out in the spot markets of different states or on a nationwide basis, then necessary regulatory approval and other conditions may be followed as per existing guidelines.

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