The Union Cabinet
on Wednesday approved significant liberalisation of the sovereign gold bonds
(SGBs) scheme, increasing holding limits manifold and deciding to make the bonds available on tap. The move would ensure regular availability and improve the liquidity of the bonds that are listed on the stock exchanges.
The investment limit per fiscal year has been increased to 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 Kg for trusts and similar entities notified by the Government from time to time. At present, annual individual limit of buying bonds is 500 grams. The annual ceiling will be on a financial year basis and will also include bonds bought on stock exchanges.
Interestingly, the ceiling on investment will not include those holdings kept as collateral by banks and financial institutions, said a press note. Experts say this provision liberalises the holding of bonds as they get 2.5 per cent annual interest on the amount invested and when they are pledged, further funding will be available for doing other commercial or investment activities.
Expert also say short-term funding available against physical gold-jewellery pledged can be extended to bonds, placing physical and paper gold on an equal footing.
The government announcement, made after the cabinet decision further said, “SGBs will be available 'on tap’. Based on the consultation with NSE, BSE, banks and Department of Post, features of the product to emulate 'On Tap' sale would be finalised by the Ministry of Finance,” The Cabinet also decided to grant flexibility to the Ministry of Finance
to design and introduce variants of SGBs with different interest rates and risk protection / pay-offs that would offer investment alternatives to different category of investors.
At present, bonds are listed on exchanges within a month from the date of issue, but they are not liquid and hence raising funds in emergency situations by selling them is not practical. This is why the Cabinet stated, “(In order to) improve liquidity and tradeability of SGBs, appropriate market making initiatives will be devised. Market makers could be commercial banks or any other public sector entity, such as MMTC
or any other entity as decided by Gol.”
The target mobilisation under the scheme was Rs 15,000 crore in 2015-16 and Rs 10,000 crore in 2016-17. The amount so far credited in the government's account is Rs 4,769 crore. This response it much below expectations and gold import trend in last six months was alarming. According to government data import bill from January to june this year was almost equal to total import bill of 2016, which has triggered the review.
The measures were announced to make bonds more attractive, mobilise finances as per the target and reduce the economic strains caused by imports of gold and reduce the Current Account Deficit