Banks may not get to use gold mobilised under the proposed gold monetisation scheme to meet the cash reserve ratio (CRR) requirement as the Reserve Bank of India has opposed the move that could dilute the effectiveness of this monetary policy tool, official sources said.
CRR, one of the policy instruments at the RBI’s disposal, mandates banks to keep 4% of their net demand and time liabilities as cash balance with the central bank. Banks do not get any interest on their CRR deposits.
CRR being a cash-based instrument, the RBI fears that gold deposits against the CRR requirements could weaken the CRR as a monetary policy tool due to the inherent price fluctuations associated with the precious metal, the sources said.
However, analysts said if the banks cannot use the gold mobilised under the monetisation scheme to meet the CRR requirements, they might not find it attractive. Banks anyway would be incurring additional transaction costs because of handling, storing, valuation, transportation and ensuring security of the gold mobilised.
In the Budget in February, finance minister Arun Jaitley announced the scheme to mobilise part of the estimated 20,000 tonne of idle gold lying with households and trusts to cut down imports of the metal, which had adversely impacted the country’s current account in the past.
The draft guidelines, released in May, had said banks could be allowed to utilise the gold held by them for lending to jewellers and also pledge more gold and less cash with the RBI against their statutory liquidity ratio requirements (SLR) or CRR.
Consequently, they could use the extra cash with them to lend at attractive interest rates, although the draft had made it clear a final view on using gold against CRR was yet to be taken. Gold is already a permitted instrument for meeting SLR requirement.
The finance ministry will likely fix a floor interest rate on gold deposits at 2% under its proposed scheme and leave it to individual banks to decide on the exact rates.
Analysts said that if gold depositors get 3% interest, the bank can give “gold loans” to jewellers at 6%, factoring in handling and refining charges of 1.5%. Currently, established jewellers get gold from banks as loan at 3.5-4.5%, though many smaller players get them at 5.5-6% or even higher.
Officials said they were examining what could be done to make the scheme attractive for banks. This has already delayed the roll-out of the scheme, which was expected in early July.
According to the draft scheme, an individual can deposit a minimum 30 gm of jewellery or bullion. The interest would be valued in gold, and the customer would have the option of redemption either in cash or in gold.