A gold-bond scheme, launched in 1993 and redeemed in 1997, was able to mop up 41 tonne of gold lying in the household sector. Sinha in his budget speech said that interest on gold bonds would be exempt from income tax. "To encourage this process, I propose to exempt interest on gold-deposit bonds from income tax and the value of assets deposited in the gold-deposit scheme from wealth tax," he said.

The gains through trading and redemption would be exempt from capital-gains tax. "Furthermore, any capital gains made on these goldbonds/certificates through trading or at redemptionwill be exempt from capital-gains tax," he said. State Bank of India chairman GG Vaidya said it would need some hard marketing to sell the scheme. "We will launch the scheme over the next three months after we set up up an in-house assaying facility. We are talking to Credit Swiss First Boston First and Rothschild... We will tie up with either of them to set up the assaying and refinery unit," Vaidya said.

"Tax concessions will encourage people to avail of the gold deposit scheme. This would help in recycling the domestic stock of gold for productive purposes and reduce dependency on imports," the SBI chairman pointed out.

Bank of India chairman and managing director S Rajgopal said: "We are planning to join hands with an established bank and frame a gold-deposit scheme shortly. We are currently awaiting RBI guidelines on the scheme."

Sinha directed all nominated banks allowed to import gold to frame a `gold deposit scheme' to mobilise gold lying idle in the household sector and offer interest bearingcertificates or bonds to investors which can be reclaimed on maturity. According to bankers, one grey area which has not been clarified by the finance minister is the reserve requirements which banks will have to maintain on the `gold deposits' being bank's liability.

The reserve requirements will increase the banks lending cost of metal. Through the gold-deposit scheme, the Centre is keen to monetise at least a part of the country's 12,000-tonne idle gold reserve through the gold deposit schemes of commercial banks. The monetisation of gold will go a long way in funding the infrastructure projects, senior bankers said.