Draft gold deposit scheme out, sets 30 grams minimum limit

The government on Tuesday put in the public domain the draft guidelines for the much awaited, interest-bearing gold monetisation, or deposit scheme, for comments, proposing to put to productive use vast amounts of idle gold with households, and thereby cut its imports.

The objectives of the scheme, under which as little as 30 grams can be deposited, is three-fold: Mobilise the gold, give a fillip to the gems and jewellery sector by making gold available from banks on loan and reduce the reliance on imported gold and conserve foreign exchange.

"The minimum quantity of gold that a customer can bring in is proposed to be set at 30 grams, so that even small depositors are encouraged. Gold can be in any form, bullion or jewellery," the guidelines, said, adding the depositors can redeem the gold either in cash or in physical form.

The comments need to be furnished by June 2.

According to the World Gold Council, an estimated 22,000-23,000 tonnes of gold is lying idle with households and institutions in India. The annual imports amount to between 850-1,000 tonnes, valued at $35 billion to $45 billion.

In his budget speech on Feb 28, Finance Minister Arun Jaitley had said that the government will come up with two schemes for gold -- one on monetisation, or permitting gold deposits with banks for interest, and the other on redeemable gold sovereign bonds also with fixed interest.

"The new scheme will allow depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account. Banks and other dealers would also be able to monetise this gold," Jaitley had said.

As per the draft guidelines, the interest earned from the monetisation scheme will be exempt from income tax, wealth tax and capital gains tax to make it attractive for households.

How the scheme will work: A person or institution holding gold can get it valued from any of the 350 hallmarking centres, then open a gold savings account with banks for a minimum period of one year and earn interest -- either in cash or gold units.

Interest on the gold savings account will be payable after every 30 or 60 days of the opening of the account. Banks will be free to decide the interest, and both the principal and interest will be valued in gold.

"Both directionally, and in terms of the content, this draft reflects a practical approach," said Somasundaram P.R., managing director for India with the World Gold Council.

"Once the incentives fall into place to the satisfaction of banks, customers and others, we will own a 'Uniquely Indian' scheme that allows gold to become a dynamic, fungible asset in the hands of gold savers with significant benefits to the economy, and therefore provide the gold trade with consistent policies."

Under the draft guidelines, the charges for hallmarking have been proposed at Rs.500 per lot for melting up to 100 grams, going up to Rs.900 for between 900-1,000 grams. Then there is also the testing charge of Rs.300, while stone removing and melting loss is at actuals.

If the gold finds its way into the scheme, then the banks will bear the cost.

How do the banks benefit: To incentivise them, it is proposed to include the deposits under the cash reserve ratio requirements. Banks can also sell the deposits to generate foreign exchange, convert it into coins, use it on commodity exchanges and lend to jewellers.

The money made in the process, thus, can be used to pay the depositors, pay the fee charged by the hallmarking centres and retain the rest as profit. Banks can also fetch gold directly from the international markets to lend to jewellers.

Highlights of the scheme:

- Customers bring their idle gold, get it verified and melted, and are provided with a receipt.

- They open a gold savings account with a bank, show the receipt and the tenure starts.

- Verification centres prepare standard bars of gold, and inform banks about the value.

- Gold is then sent to a refinery and is deposited as bars in state-owned vaults.

- Jewellers approach banks for gold loans or for purchase of gold.

- Banks tell refinery to send the agreed amount of gold to jewellers.

- Upon maturity of loan, jewellers repay the banks in cash.

- Similarly, upon maturity, customers get back physical gold, cash or dematerialised gold.

- Banks extend interest to customers and make money by levying interest on gold loans.