Govt may not link gold monetisation scheme with CRR

The Finance Ministry is unlikely to link the proposed gold monetisation scheme with the mandatory CRR requirement as it might dilute the effectiveness of the monetary policy tool used by the RBI to control flow of liquidity into the system.
The Ministry, according to sources, may not push with its initial proposal of allowing banks to use gold mobilised under the monetisation scheme for meeting mandatory Cash Reserve Ratio (CRR), the portion of deposits which banks are required to park with RBI in cash.
At present, banks have to keep 4 per cent of their deposits with the Reserve Bank, while 21.5 per cent in Government Securities as Statutory Liquidity Ratio (SLR).

"RBI had argued against using gold deposits as CRR and said the move will weaken CRR as a monetary policy tool," a source said.
RBI, it is learnt, has told the Ministry that banks may hoard excess gold if it is included in CRR.
The Gold Monetisation Scheme is expected to be launched by the first week of September and the Cabinet approval for the same is expected in a couple of weeks, the source added.

"To incentivise banks, it is proposed that they may be permitted to deposit the mobilised gold as part of their CRR/SLR requirements with RBI. This aspect is still under examination," the draft guidelines on Gold Monetisation Scheme issued in May had said.

Seeking to mobilise large amount of idle gold held by households and institutions, the government in May proposed a new scheme offering tax-free interest on depositing the yellow metal with banks.
The draft gold monetisation scheme also provides for incentives to the banks, while individuals and institutions can deposit as low as 30 gm of gold, while the interest earned on it would be exempt from income tax as well as capital gains tax.
The stock of gold in India that is held by people of the country that is 'neither traded nor monetised' is estimated to be over 20,000 tonnes.

If gold mobilised through scheme is allowed to meet bank's CRR/SLR requirements, the value of the metal will be considered as deposits for meeting the reserve ratios.
In the bullion market, gold prices were Rs 25,200 per ten grams today. Gold prices had touched over four year low of Rs 24,980 per 10 gm last month.