The RBI has directed the 12 nominated banks-- which have been allowed to retail gold in the domestic market--to launch a gold deposit scheme which is aimed at cutting down on gold imports by banks. The centre has recently hiked the the gold import duty from Rs 250 to Rs 400 per 10 grams which has made import of the yellow metal quite expansive.

The RBI directive to the banks said: Banks should make use of the `household gold' lying idle in the country for `productive purposes' by accepting gold from public as deposits and also buy it directly from the metal holders.

According to RBI, banks are the most suitable vehicle for mobilising gold available within the country. The World Gold Council has pegged the quantity of gold available in India around11,000 tonnes.

The RBI's move to allow nominated banks to launch a gold deposit scheme is yet another step towards liberalising the domestic gold policy. In the last week of December the central bank allowed 12 nominated banks to retail gold in the domestic market and advance gold as loans to jewellery exporters.

Bankers are of the view that gold deposit mobilisation scheme will revolutionise gold trading in the country and also help banks to source gold at a much cheaper rate from the domestic market. The banks have been importing the yellow metal at a marginally high cost from international agencies. The cost includes import duty (which has gone up from Rs 250 to Rs 400 per gram of gold), withholding tax, price risk, transaction and administrative cost.

The gold deposit scheme can be of two types -- a vanilla fixed deposit scheme or a saving account scheme. "We cannot have a fixed interest rate on these schemes as we will have to take into account the price volatility for determining the rate.However, it can be in the range of 0.5 per cent to 2.5 per cent on the quantity of gold deposit," said an official from a nationalised bank."For investors it can be a efficient hedging product against inflation," he added.

ABN Amro Bank's trade and commodity finance head Ramesh Ganesan said, "factors like purity of the metal, price risk and valuation of the metal calls for serious consideration before the launch of such a product in the market."

In order to make the gold loan scheme successful and make bullion available to Indian jewellery exporters at a cheaper rate, the Maharashtra government has exempted sales tax on bullion which is advanced to exporters.

The list of 12 nominated banks which are allowed to import gold includes ABN Amro Bank, Allahabad Bank, Bank of Nova Scotia, Bank of India, Bank of Baroda, Canara Bank, Corporation Bank, Oriental Bank of Commerce, Indian Overseas Bank, Standard Chartered Bank and Dena Bank.

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Gold loan schemes to become popular: The ReserveBank of India may allow banks to use gold deposits as reserve requirement. This will reduce the cost of lending of gold and popularise the gold loan scheme. The demand for treating gold deposits as part of reserve requirement has been pending with the RBI for quite sometime. As the gold deposits are liabilities, it attracts CRR as well as statutory liquidity ratio (SLR). Similarly, as gold advances given by banks are banks assets, it attracts capital adequacy. These factors add to the cost of the yellow metal. If the RBI allows banks to deposit gold with the central bank as CRR, the cost will certainly come down.