Gold bonds: RBI to issue second tranche

The central bank will allow applications for the bonds from Jan 18 to Jan 22

The Reserve Bank of India (RBI) will issue the second tranche of the government's sovereign gold bond scheme on February 8 and will allow applications for the bonds from January 18-22. The bonds will be issued at an interest rate of 2.75 per cent payable on the initial amount of investment, according to the official press releases from the finance ministry and the central bank.

The bonds will be sold through banks, the Stock Holding Corporation of India (SHCIL) and designated post offices, RBI said. The borrowing through the bonds will form part of the government's market borrowing programme.

The first tranche of gold bonds saw a massive response from investors. The first tranche attracted 62,169 applications for 916 kg of gold amounting to Rs 246 crore of investments. Applications for the first tranche were kept open for 15 days from November 5 to November 20, 2015.

The second tranche issue will be kept open only for five days. The shorter duration issue will help avoid price variations in issue price and market price. In first tranche, when the issue had closed, market prices were almost five per cent lower than the issue price.

While the issue price is not declared, if the bonds were to be priced today, they would be at around Rs 2,600 per one gram gold based on the formula for calculating the bond issue price. The first tranche was priced at Rs 2,684 per gram gold. The price is expected to be announced on Friday.

Additionally, Finance Minister Arun Jaitley on Thursday reviewed the Sovereign Gold Bond scheme with the banks and discussed their preparedness for the second tranche of the scheme.

Jaitley asked all the banks to make their best efforts to reach out to potential investors to invest in the second tranche of the scheme. He said this was an attractive opportunity for the investors, an official statement said.

The minister was addressing the chairmen and managing directors of banks through video conferencing. He said the government was keen to expand the scheme in the subsequent tranches as well.

Jaitley's conference with the banks was followed by a review of the scheme by Economic Affairs Secretary Shaktikanta Das with all the bank heads. All the banks assured they would activate their branch network to inform investors about the advantages of the bonds, the statement said.

"To increase the awareness among depositors, the government is continuing with the media campaign on All India Radio and FM radio, in print media and through mobile SMS campaign. Information is also available on the website www.finmin.nic.in/swarnabharat and on the toll free number 18001800000," the official release stated.

The second tranche of the scheme will have the same tenure as the first tranche of eight years and an exit option from the fifth year onwards. The bonds will be denominated in multiples of grams with the minimum allowable holding by an investor being two gram and the maximum being 500 gram.

Payment for the bonds will be through cash payment up to a maximum of Rs 20,000 or demand draft, cheque or electronic banking. The redemption price will be in rupees based on the previous week's (Monday-Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association, the release said.

The bonds can be used as collateral for loans. The loan-to-value ratio is to be set equal to ordinary gold loans mandated by RBI from time to time. Know your customer (KYC) norms for the bonds would be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport would be required.

The interest on gold bonds is taxable according to provisions of the income tax Act and the capital gains tax shall also remain the same as in the case of physical gold. Commission for distribution shall be paid at the rate of one per cent of the subscription amount.

NEW ISSUE

| The Reserve Bank of India will allow applications for the bonds from January 18 to January 22
| The bonds will be issued at an interest rate of 2.75 per cent payable on the initial amount of investment
| These will be sold through banks, Stock Holding Corporation of India (SHCIL) and designated post offices

| While the issue price is not declared, if the bond were to be priced today, it would be at around Rs 2,600 per 1 gm gold based on the formula for calculating the bond issue price
| The first tranche of the bond attracted 62,169 applications for 916 kg of gold amounting to Rs 246 crore of investment