Gold monetisation: Refiners see good business opportunity

Want government to certify those with good prior record, as with hallmark centres; much depends on banks' reactions and decisions such as rate of interest offered

Operating at less than 35 per cent of installed capacity for several years due to raw material scarcity, gold refiners are seeing a good business opportunity through the government’s proposed Gold Monetisation Scheme (GMS) and the rise in import of doré gold (a semi-pure alloy, created at the mine site for further purification at a refinery).

The draft GMS, issued last week for public comment, allows holders to deposit at least 30g of gold in a bank account after melting of ornaments, coins, etc, proposed to be lent to jewellers. Import of doré gold has also increased over recent months and is now 15-20 tonnes a month.

For a large quantity of 20 kg and above, the cost of refining is Rs 5-7 a gramme. Any reduction in quantity would proportionately increase the cost of refining. If banks hold on to gold, to keep the refining cost under check, the holding cost would hit their margins as interest to customers would begin from the date of deposit in the account. According to an expert, banks’ overall procurement cost would be 1.45 per cent.

“Our current business is confined to a small quantity of used ornaments, sourced from domestic jewellers. Recently, however, doré import has also started to help increase our operations. And, with participation from retail consumers under GMS, inflow of gold jewellery and coins would increase. To streamline the process, the government must approve domestic refineries to make the quality of gold acceptable to banks. Refineries with a credible record among jewellers should get approval from the government, similar to hallmarking centres,” said Suraj Kansara, Director, Gujarat Gold Centre, an Ahmedabad–based refinery, serving 25 large corporate clients in the region.

The government has identified 350 hallmarking centres, certified with the Bureau of Indian Standards (BIS). These would send gold (converted by melting ornaments) to their empanelled refiners to produce bars.

Jewellers, meanwhile, believe temple gold and unwearable jewellery might be brought for melting, to make these fungible assets. Rajesh Mehta, managing director of Rajesh Exports, estimates 50-60 tonnes of gold could be mobilised under GMS in the first year itself.

Sandeep Kulhalli, senior vice-president (retail & marketing), Tanishq, added: “Such (melted) ornaments would also fetch some interest income. But, much would depend upon the interest offered by banks.”

The draft GMS allows opening of a gold account in banks for one year, under which customers can chose to get either cash or gold on maturity. Banks are allowed to determine the interest rate, which would be tax-free. They are to enter into an agreement with refiners and purity testing centres selected by them to be their partners in the scheme. The agreement will specify the details on payment of fee, services to be provided, standards of service and the arrangements between the three parties.

At present, there are 32 refineries in the country. The laboratories of some of these are registered with the National Accreditation Board for Testing and Calibration (for the processes they use). BIS has been asked by the government to ascertain if it can also conduct an accreditation of the products being produced in these refineries.

Banks currently deal with the gold standard approved by the London Bullion Markets Association (LBMA). In India, MMTC Pamp is the only refinery approved with an LBMA standard. All other refineries produce gold with 99.9 per cent purity.

ALL THAT GLITTERS IS GOLD

• The draft GMS allows holders to deposit at least 30g of gold in a bank account after melting of ornaments, coins, etc, proposed to be lent to jewellers
   
• Import of doré gold has also increased over recent months and is now 15-20 tonnes a month
   
• For a large quantity of 20 kg and above, the cost of refining is Rs 5-7 a gramme
   
• If banks hold on to gold, to keep the refining cost under check, the holding cost would hit their margins as interest to customers would begin from the date of deposit in the account