India needs its own gold standards for GMS to succeed

India Mint, CSIR & BARC signed an agreement last week to develop a standard reference material for gold

The gold monetisation scheme (GMS), which was launched on November 5, 2015, has seen a tepid response as it completes a year. Compared to that, the sovereign gold bonds have met with reasonably good success.

While industry players say hallmarking centres, which are acting as collecting and purity testing centres (CPTCs), and gold refineries are getting enquiries and they have signed tripartite agreements with banks as well, which is mandatory for the scheme, onus is on banks to give concrete shape to the scheme and then popularise it. Independent observers say that more time needs to be given for the GMS to see real success. However, now there is hope that an agreement signed between the Government of India Mint, Council of Scientific & Industrial Research (CSIR) and Bhabha Atomic Research Centre (BARC) last week will help push the GMS ahead.

James Jose, secretary, Association of Gold Refineries and Mints, said, "India Government Mint developing a standard reference material (CRM) for gold in collaboration with BARC and CSIR is heartening, and this will help the gold testing labs attached to hallmarking centres and gold refineries to accurately fine tune and calibrate their fire assay results. So far, such CRMs were sourced from NIST (National Institute of Standards and Technology) USA and LBMA (London bullion market) approved agencies."

According to sources, this was a big issue for banks as they had signed agreements with refineries but were not pushing GMS. Citing the reason for the lack of enthusiasm on the part of the banks, a source close to the development said: "Banks were more comfortable with gold refined by India Mint and whatever gold that has come under the scheme so far was refined mostly at India Government Mint." The Indian Gold Reference Standard, which is being developed, can be used by refineries in assay to certify its own refined gold. Also, such standards can be used for calibration of measuring equipments like ICP-MS, ICP-OEC, XRF, etc.

However, apart from Indian Gold standards, many more things are required. Jose said, "The GMS is a very novel scheme  aimed at reducing gold imports and mobilising idle domestic gold, but it has not taken off due to the lack of policy initiatives from the government and banking regulatory authorities." Basically, Jose suggested a top down strategy to ensure that the scheme succeeds.

This is not the first time that an ambitious scheme has taken time to be successful in the country. From demat of shares, which took three-four years to pick up, to ATMs, such schemes have faced have faced hurdles. 

Somasundaram PR, managing director (India), World Gold Council, said, "Banks need to be given more time as the scheme requires a change in mindset. There are some logistic complexities also. Banks should also be allowed to buyback gold coins they sell, which will help them in bringing back gold which had been sold earlier and make it available for lending to jewellers."

One of the issue that is haunting banks is that they have to pay interest for a short-term loan tenuring one-three years, while maximum period of lending gold to jewellers is 180 days. "Banks seem to be searching for better options to deploy gold for longer periods of three years etc, so as to generate sufficient income to service the GMS gold. These CPTCs and refineries are getting regular enquiries from consumers willing to deposit gold for various tenures, but due to lack of clear cut instructions from the banks, these service providers are not in a position to accept the gold from consumers," said Jose.

Tepid progress