Banks' core competency is credit, not precious metals: Rajesh Khosla

Interview with Managing Director, MMTC-PAMP

MMTC-PAMP has proposed the government re-launch a gold monetisation scheme (GMS), with two-three per cent interest and at least 40-50 g of gold deposits. The scheme’s success will depend on a lower quantity of the least deposits required, along with the trust and expertise of MMTC, Rajesh Khosla, managing director of MMTC-PAMP, India’s only London Bullion Markets Association-approved gold and silver refinery, tells Dilip Kumar Jha. Edited excerpts:

What is driving MMTC-PAMP to come out with a gold monetisation scheme?

Initially introduced in 1999, the gold monetisation scheme was aimed at providing an opportunity to earn interest on idle assets, with liquidity and tax benefits. Idle gold can be put to productive use, reducing import. So, we found there was scope to monetise idle gold with Indian households

India’s march towards attaining self-sufficiency in gold hinges on its ability to mobilise a significant part of the 25,000 tonnes of its above-ground holding in investment bars and jewellery. In the past, various schemes tried to mobilise gold from individual households and reduce imports, but with little success. Those schemes were tailored for banks and large gold-holders and overlooked the gold held by India’s teeming millions.

How will the scheme benefit MMTC-PAMP?

MMTC-PAMP will be an enabler in the scheme, as it is the only refinery to be accredited with the London Bullion Markets Association. For this, MMTC-PAMP is working on advanced software, which will be ready by October. We are in preliminary discussions with banks to fine-tune the scheme, as it will be a huge logistical exercise and involve many stakeholders. If the scheme takes off, we will collect, assay, transport, refine and re-transport gold, as instructed by banks.

Since 2009, State Bank of India (SBI) has been running such a scheme, but it hasn’t seen much success. What went wrong and why do you thing MMTC will succeed?

When SBI launched the scheme, the global economic turmoil had led to demand for the yellow metal. However, as the least deposit required was 500 g, it didn’t see an encouraging response.

Also, I feel banks’ core competency is currency and credit, not precious metals. Banks should focus on what they are good at---mobilising deposits and handling the risks associated with transforming these into loans. Storage, tracking and management of metal deposits are best done by an organisation competent to handle the part of the transaction involving precious metals. The new government is keen on introducing schemes to cut dependence on imports and I am hopeful a modified gold monetisation scheme will be implemented soon.

How is your scheme different from SBI’s?

The new gold monetising scheme will treat gold deposits skin to fixed deposits; interest earned on it will be paid in gold, instead of rupees. The retail customer will have to open a ‘gold account’ with the bank. Subsequently, the gold can be deposited for up to three years. The interest will be tentative, depending on the prevailing interest environment. Banks could lend this gold to jewellers.

While converting ornaments into pure gold under the new scheme, a customer has to forego at least 15 per cent of the making charges on jewellery.

How has it progressed so far?

The concept has been proposed to the government. We will have to involve banks, the Reserve Bank of India and the finance ministry. At this stage, we are explaining to all stakeholders how the scheme will work.