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The government and the Reserve Bank of India (RBI) are considering buying idle gold from investors and routing it to jewellers to replace imports. To facilitate this, a bullion bank or Bullion Corporation of India (BCI) is proposed to be set up.
Through the bank, gold would be bought, sold, lent and taken as deposit, sources familiar with the development said. Indian households are estimated to hold 20,000-25,000 tonnes of gold. Every year, 800-900 tonnes are added to that. MMTC is also said to have been sounded for execution of the plan.
Banks could be allowed to hold gold as security under the statutory liquidity ratio (SLR). Basel norms permit banks to hold gold as part of SLR. This will result in banks buying gold from the public and selling securities they hold under SLR.
According to a proposal, banks could hold two per cent of SLR requirements in the form of gold. The idea of setting up BCI was mooted by an RBI working group headed by K U B Rao in January. Rao had suggested BCI could be set up by RBI with 51 per cent equity and should have Rs 1,000 crore in paid-up equity; financial institutions and banks could be 49 per cent equity holders. The Rao committee had said most of the household gold was held by rural people who were not income tax payers in general; hence mobilising gold from them would not involve the grant of tax amnesty. Amnesty may however be required to lure high net-worth individuals. A large amount of black money in the system is said to be held in the form of gold.
In case of gold deposit schemes, a smaller quantity (100g instead of a minimum 500g at present) may also be accepted. The interest rate could be a little less than the savings bank rate, which is four per cent on average, and the banks could lend the gold so collected to jewellers at 5.5-6 per cent. Cameron Alexander, manager, precious metals demand, Middle East and Asia, GFMS Thomson Reuters, told Business Standard: “In recent years, Turkey had launched a gold deposit scheme and as of June, banks were holding almost 270 tonnes on behalf of depositors. Such schemes have also been implemented in Taiwan, Vietnam, and South Korea with success.
The result, however, could be different in India based on the consumers’ close affinity towards gold.”
Source who is familiar with the development said that while no final decision has been taken so far but to make gold deposits depositor friendly and for that a part of the gold deposit will be kept free from lock in. minimum size of the deposit could be reduced to 100 grams from 500 grams at present.