By Siddesh Mayenkar

MUMBAI (Reuters) - Some large Indian jewellers and traders have started selling imported gold and silver coins, ahead of big festivals, raising competition for banks in a fast expanding investment segment, industry players said.

Currently big state-run and private sector banks like Corporation Bank, Axis Bank, IndusInd Bank, ICICI Bank and HDFC Bank sell coins through their branch network, and may find the going tough as local jewellers step into the market.

A prominent jeweller in Mumbai and a wholesaler in Ahmedabad said they were importing Swiss-made coins, which are in demand ahead of Dhanteras and Diwali festivals next week, when people traditionally step up gold purchases.

"This trend will fast catch up among jewellers and they are happy charging a smaller margin as they look for turnover," said Nayan Pansare, an independent analyst.

"We started selling coins since last year. We got the benefit of selling gold coins as we are priced lower than the banks and we also repurchase," said a store manager with jewellery retailer Popely and Sons.

Imported coin sales are up 20 percent on year, he said.

India, the world's biggest importer of the yellow metal, accounts for over 20 percent of global demand for gold jewellery.

"I have imported 25 kgs of coins for my clients," said Haresh Acharya, head of bullion desk at Ahmedabad-based bullion wholesaler Parker Agrochem. "There is market for such coins, but the margins charged by banks is huge."

Even though investment-led demand accounts for 30 percent of gold sales, it is growing faster than the jewellery segment.

"Gold coins and bars is better form of investment because one can save on wastage and making charges," said Daman Prakash Rathod, ex-convenor of Tamil Nadu Bullion Forum.

On Friday 9 October, HDFC Bank quoted 18,933 rupees for a 10 gram gold coin, while an Ahmedabad-based trader quoted 16,750 rupees.

Banks admit that local jewellers selling imported gold coins pose a challenge.

"It is a challenge to fight small jewellers (in coins market) as they have many advantages because of their small scale," said an official with a private bank dealing in coins, who did not wish to be named. "Another big disadvantage is we cannot buy back coins, which again works in favour of jewellers."

"They are traditionally into that business. They have wide range of customers and walk-in customers. They have an advantage on the price front also," added the official.

"We incur huge holding cost and distribution cost, pretty much higher than the market," said another official with a large private bank dealing in coins.

The organised retail market, which is dominated by banks, sells 8 tonnes of coins per year, according to a bank source. However, the market for coins and bars is much larger.

According to latest data from the World Gold Council, India imported 211 tonnes in 2008 for gold bought as investment, while jewellery was at 501.6 tonnes.

(Editing by Sunil Nair)