Govt may announce changes in gold monetisation scheme in next few days

The government is planning a relaunch of the gold monetisation scheme (GMS), launched three years ago, because of its slow progress.

The finance ministry is likely to announce changes in the GMS in the next few days, according to sources.

The relaunch will identify 40-50 cities where banks will push the scheme and there will be one designated branch for accepting gold deposits, which will be based on the certificate provided by the collection centre. 

The country’s largest lender, State Bank of India, is expected to be asked to identify at least 10 branches for this.

The scheme, which offers interest on idle gold, found few takers and only 14.4 tonnes of gold has been mobilised since its launch on November 5, 2015, by Prime Minister Narendra Modi.

In the past two weeks, the finance ministry held two-three rounds of meetings with stakeholders, and last Wednesday, it met banks, representatives of refineries and hallmarking centres, and the Comptroller and Auditor General of India, and a mechanism was finalised. 

Banks have been told to expedite the collection of gold as deposits under the GMS.

WORTH THEIR WEIGHT IN GOLD?

On Nov 5, 2015, PM had announced 3 schemes to reduce gold imports

1. GOLD MONETISATION SCHEME (GMS)

About 22,000-24,000 tonnes of gold are lying idle with Indian households. Plus, India imports around 800-1000 tonnes more every year. If this gold is deposited under GMS which can be lent to jewellers, the need for import will come down significantly. However, banks are not pushing GMS and only 14.4 tonnes was mobilised so far under the scheme.

2. SOVEREIGN GOLD BONDS

There have been several issuances of gold bonds so far, but only 23.5 tonnes worth of bonds have been sold. RBI says the response is not good due to low investor appetite. There are expectations that next year, the scheme may be liberalised further.

3. ASHOK CHAKRA GOLD COINS
 

The third scheme was that MMTC would make gold coins with Ashok Chakra embossed on them from GMS gold. MMTC has sold 700 kg worth of coins in three years and another 50 kg are expected to be sold during this festival season from a 100-kg inventory. 

A source who attended meeting said, “The government will soon ask banks to popularise the scheme and make all arrangements to open depositors’ accounts and take deposits under the scheme. Bankers who participated in the meeting have been told to sign agreements with collection (hallmarking) centres and refineries and operationalise the scheme.”

Banks have been told to expand their gold metal loan portfolios, but they have not linked gold metal loans (or lending gold to jewellers) to their core banking software, which will take time. Bankers said at the meeting it would take them two-three months to implement it.

Industry sources said in the meetings stakeholders sought clarification from the finance ministry about income-tax scrutiny regarding the GMS, or allowing collection centres and refineries to mention the relevant income tax circular clarifying the quantity beyond which gold would be seized during raids. 

A possible income tax inquiry on the source of gold is the biggest fear deterring retail customers from participating in the GMS.

According to a circular of the Central Board of Direct Taxes, which is a few decades old, gold ornaments of up to 950 gm from the assessee’s place found even during raids cannot be seized. 

Banks are to operate the GMS in association with hallmarking (collection) centres and gold refineries. Short-term deposits (one-three years) of gold mobilised under the GMS can be used for lending by banks, while medium- and long-term gold would be given to the government and MMTC auctions it on the government’s behalf.

Ashwini Kapoor, chief general manager, MMTC, said: “We have sold 8 tonnes of gold, which came to MMTC through auction.” 

According to sources, the Indian Banks’ Association (IBA) can direct banks to push the scheme but only if the Reserve Bank of India nudges the IBA to do so.

Under the procedure, banks have to sign tripartite agreements with collection and purity-testing centres (CPTCs), which will melt the gold jewellery and issue certificates to depositors, which becomes a base for opening gold deposit accounts by banks. CPTCs, however, have to send the gold collected after melting to refineries in accordance with the tripartite agreement with banks.

Another source said refineries had given an assurance in the meeting that after getting gold from CPTC, they would deliver refined gold within seven days to banks. CPTCs are hallmarking centres with some additional facilities and as of now 47 centres have upgraded themselves to be eligible to act as CPTC. There are 675 hallmarking centres in the country and 100 are in the pipeline.