Indian banks may offer interest on gold deposits of above 30 grams

By Rajendra Jadhav

MUMBAI (Reuters) - India could allow individuals deposit a minimum of 30 grams of gold with banks in return for interest payments to help monetise large quantities of the metal lying with households, a step that is aimed at cutting expensive imports.

Trying to mobilise 20,000 tonnes of unproductive gold owned by Indian households into cash, Finance Minister Arun Jaitley in his budget speech on Feb. 28 unveiled the gold monetisation scheme.

Banks could treat gold deposits as part of their cash reserve ratio (CRR) or statutory liquidity ratio (SLR), the finance ministry said in its guidelines released on Tuesday to seek opinions about its gold monetisation scheme. It said the stakeholders could respond to its suggestions by June 2.

The SLR is the minimum amount of bonds that banks must have, while the CRR is the share of deposits they have to compulsory keep with the central bank.

"Both directionally and in terms of content, this draft reflects a practical approach," said Somasundaram PR, managing director of World Gold Council's India operations.

"Once the incentive framework falls into place to the satisfaction of the 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."

Indians' penchant for gold spans centuries and is rooted in the Hindu religion, with the Diwali festival being one of the biggest annual buying seasons. Gold also forms part of dowries and it is an instrument of financial security for 70 percent of India's rural population.

The government is trying to convince households, who sometimes have little faith in financial institutions, to break the tradition and hand over gold passed down the generations.

Under the scheme, customers' will have to deposit gold for at least a year and banks may pay the interest after 30 or 60 days of the opening of the gold savings account, the proposal said.

Both the interest and the principal payable to depositors are likely to be valued in gold and the gains will be tax-free, it said.

"Lower threshold for deposits and tax exemptions will make the scheme attractive for households," said a Mumbai-based dealer with a bullion importing bank.

But the biggest challenge would be to set up collection centres that can accept gold, the dealer said.

(Additional reporting by Suvashree Dey Choudhury; editing by Mayank Bhardwaj and Louise Heavens)