1. Banks’ aversion to higher interest may hurt India plan to draw out gold stocks

Banks’ aversion to higher interest may hurt India plan to draw out gold stocks

Indian lenders do not want to raise interest on gold deposits much beyond 1 percent, bankers said, which could derail a government plan to cut massive imports by mobilising tonnes of gold now stored in households and temples

By: | Panaji | Published: August 22, 2015 1:56 PM
gold stocks

In May, New Delhi proposed that banks treat gold deposits as part of their cash reserve ratio (CRR), the share of deposits they are compelled to keep with the central bank, or the statutory liquidity ratio (SLR), the minimum amount of bonds they must hold. (Reuters)

Indian lenders do not want to raise interest on gold deposits much beyond 1 percent, bankers said, which could derail a government plan to cut massive imports by mobilising tonnes of gold now stored in households and temples.

Prime Minister Narendra Modi’s government is expected to launch a scheme this year to lure into circulation some of the 20,000 tonnes of idle gold, melting it down and lending it to jewellers, to feed Indians’ ravenous appetite for the metal.

Huge gold imports were blamed for pushing the current account deficit to a record $190 billion in 2013, prompting the government to hike its duty on imports to 10 percent, an all-time high.

In 1999, a similar gold monetisation plan proved ineffective, partly because of low interest rates, and bankers fear a repeat unless the government funds lenders to implement the programme.

“We can’t give more than 0.75 percent interest,” said Neerja Nigam, deputy general manager of precious metals at State Bank of India, the country’s biggest lender by assets.

“We have asked the government to give us some incentives,” she said on Saturday on the sidelines of the International Gold Convention in Panaji, capital of the western state of Goa.

In May, New Delhi proposed that banks treat gold deposits as part of their cash reserve ratio (CRR), the share of deposits they are compelled to keep with the central bank, or the statutory liquidity ratio (SLR), the minimum amount of bonds they must hold.

But the government dropped the conditions after the Reserve Bank of India expressed fears that banks might hoard gold.

Nigam said her bank could pay interest of 2 percent if deposits counted towards the CRR. Two other private bankers agreed, but declined to be named as they did not want to be seen speaking against the government.

Indians’ penchant for gold is rooted in the Hindu religion, with the key annual buying season falling around October, the time of the Diwali festival of lights.

Gold forms part of women’s marriage dowry, and two-thirds of the rural population prizes it for financial security.

The government wants families to abandon tradition and hand over their gold.

“At 1 percent, I don’t think the scheme will succeed,” said a leading jeweller from Kerala, a southern state. “Very few households will come forward.”

One government source said the scheme could roll out in September.

“At the start the government should give banks interest subvention to make things viable,” said Shekhar Bhandari, executive vice-president of Kotak Mahindra Bank.

  1. S
    Sadasivan
    Aug 22, 2015 at 5:23 pm
    RBI should have more Gold in its Forex Reserves.hence thhe Commercial banks can also have Gold in their et cl.
    Reply
    1. S
      Sadasivan
      Aug 22, 2015 at 5:24 pm
      RBI's opposition is NOT surprising but bad for India.
      Reply
      1. S
        Sadasivan
        Aug 22, 2015 at 5:21 pm
        .RBI's is "ding" Fiat Currencies in India's Forex reserves,High time it started having Gold as a major portion of the Forex Reserves.This will stand India in good stead in the coming days of Global economic and Financial collapse.
        Reply
        1. S
          Sadasivan
          Aug 22, 2015 at 5:20 pm
          .RBI's policy of "ding" Fiat Currencies in India's Forex reserves,High time it started having Gold as a major portion of the Forex Reserves.This will stand India in good stead in the coming days of Global economic and Financial collapse.
          Reply
          1. S
            Sadasivan
            Aug 22, 2015 at 5:18 pm
            Bank's "ding ",Gold will counterbalance the RBI's anti-India policy of "ding" Fiat Currencies in India's Forex reserves.
            Reply
            1. S
              Sadasivan
              Aug 22, 2015 at 5:17 pm
              Bank's "ding "God will counterbalance the RBI's anti-India policy of "ding" Fiat Currencies in India's Forex Reserves.
              Reply
              1. S
                Sadasivan
                Aug 22, 2015 at 5:17 pm
                Bank's "ding "God will counterbalance the RBI's pro-US Dollar policy of "ding" Fiat Currencies in India's Forex reserves.
                Reply
                1. S
                  Sadasivan
                  Aug 22, 2015 at 5:19 pm
                  Bank's should "d "Gold.RBI's policy of "ding" Fiat Currencies in India's Forex reserves,will be nullified.
                  Reply
                  1. S
                    Sadasivan
                    Aug 22, 2015 at 5:21 pm
                    Commercial banks ding Gold is good for India in the long run.
                    Reply
                    1. S
                      Sadasivan
                      Aug 22, 2015 at 5:15 pm
                      RBI's aversion to Commercial Banks,"ding" Gold is not surprising as it is anti-Gold,anti-Rupee and pro-US Dollar.
                      Reply
                      1. S
                        Sadasivan
                        Aug 22, 2015 at 5:16 pm
                        RBI's opposition is not surprising but is bad for India.Banks ding Gold is good,as RBI is ding ONLY FIAT Currencies.
                        Reply
                        1. S
                          Sadasivan
                          Aug 22, 2015 at 5:22 pm
                          RBI's opposition to Commercial banks ding Gold is bad for India in the long run.
                          Reply
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