India's crackdown on undisclosed foreign assets and income is curbing demand for gold in the world's second-biggest consumer, while rising real interest rates and better returns from other financial markets are also hurting purchases, a banker said.

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Although consumption should pick up from now until the end of the financial year, when India buys more for gifting during festivals and weddings, weak demand so far has dragged on the global gold price that has shed nearly 9 percent from a two-year high in July to $1,258 an ounce on Tuesday.

Unofficial estimates suggest funds illegally deposited in banks outside the country to avoid tax, known as "black money" in India, account for about 10-30 % of the country's gold demand, said Bhandari.

A tax evasion amnesty scheme, led by the government of Prime Minister Narendra Modi, that closed in September disclosed nearly $10 billion in undeclared income.