Soon individuals and temple trusts can deposit gold with banks and earn interest in return. The finance ministry’s gold monetisation scheme enables individuals to park a minimum 30 gram of the metal with banks for at least a year and earn tax-free interest.
Customers can open a gold savings account with a bank and earn interest on gold assets like bullion or jewellery.
Banks will melt the gold and get a value from BIS-approved hallmarking centres. Both principal and interest payment to customers will be valued in gold and the interest on the gold deposits will be decided by the bank.
Depositor’s preference to either redeem the interest in gold or cash will have to be stated at the time of deposit.
The purity of the gold will be tested at the hallmarking centres in the country. An XRF machine-test will be conducted to value the amount of pure gold. If a customer does not agree to the machine test, he can take back the jewellery. After the consent of the customer is taken, the ornament shall be sent for melting and the net weight will be calculated. If the customer is not satisfied with the value after the fire assay test, he can take back the melted gold in the form of gold bars after paying a nominal fee to the centre. If the customer agrees to deposit the gold, he will be given a certificate by the collection centre certifying the amount and purity of the deposited gold.
The tenure of the deposit will be minimum one year and can be extended for multiple years. Like a fixed deposit, breaking the lock-in period will be allowed. The scheme will have tax exemption from capital gains, wealth tax and income tax. Initially, the scheme will be launched in selected cities and extended to other cities later.
Experts say the move will attract a part of the 75-tonne scrap gold that comes into the market from household every year. The finance minister in the Budget speech had said the stock of gold in India was estimated at over 20,000 tonne, but these were neither traded nor monetised. For the government, the scheme will curb rising gold imports.
Higher gold imports — $56.5 and $53.8 billion in FY12 and FY13, respectively — resulted in a record current account deficit of 4.2% and 4.8% of the GDP in these two years. India is one of the largest consumers of gold and imports as much as 800-900 tonne every year.
The scheme’s success will depend on the attractiveness of rates offered by banks. A similar scheme introduced 16 years ago failed as it could mobilise only 15 tonne gold. The minimum deposit was 500 gram and offered a mere 0.75% on a three-year deposit. Retail investors will also need a guarantee that the tax officer will not come calling on the depositor. For banks, the attractiveness of the new scheme will depend on whether the deposit will count towards cash reserve ratio and statutory liquidity ratio requirements. If they are allowed to do so, it could enable banks to release funds for lending in the economy.
Analysts say while the minimum quantity of gold to be deposited, set at 30 gram, is better than the 500 gram offered earlier, it could have been set at 10 gram to lure people to try the scheme and gradually increase the minimum quantity over years as people become more comfortable with the process. Fire assaying charges should be uniform across the country and the charges must be told upfront. Also, the depositor should have the flexibility to decide on maturity depending on his needs at that point of redemption.
While gold has always been an integral part of the economy and is considered a hedge against inflation, sentimental attachment to gold does not mean household will refuse to explore the potential for monetisation of gold assets. A Ficci-World Gold Council study shows consumers are willing to consider interest-bearing gold-based investment products, even if the gold received at the end of the tenure is different from what they had deposited. Nearly two-thirds respondents said they would be happy to receive different gold from their initial deposit, while 62% said they would prefer cash or Indian branded gold coins at the maturity. Only 8% said they would prefer to have their original gold returned to them.
In the same survey, over a third of respondents said they are willing to deposit 25-30% of gold they have, while 3% would deposit between 75% and 100%. The survey found that respondents would prefer medium-term investment products that accept either fixed or ad-hoc payments and can be redeemed as cash. Analysts say interest rates of 4-5% will pull investors into the gold monetisation scheme. If the scheme works, it could increase the recycling of domestic gold, monetise some physical savings of households and reduce dependence on gold imports.
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