The Reserve Bank of India (RBI) on Thursday issued directions under the gold monetisation scheme (GMS) to all scheduled commercial banks, excluding regional rural banks, to accept gold deposits for short and long terms, and provide interest on the gold deposited.
The short-term bank deposits will attract applicable cash reserve ratio (CRR) — proportion of total deposits banks have to maintain with the RBI — and statutory liquidity ratio (SLR). However, the stock of gold held by the banks will count towards the general SLR requirement. SLR is the reserve requirement that banks have to maintain in the form of gold, government-approved securities before providing credit to customers.
The scheme was announced in September after Cabinet approval, in a move aimed at reducing physical demand for gold and curbing imports to rein in the current account deficit (CAD) — the measure of the difference between the inflows and outflows of a foreign currency. CAD is currently at 1.3% of GDP, much lower than 4.8% recorded in 2013.
While the exact date of implementation of the scheme will be announced in a few days, the RBI specified that the GMS will replace the existing Gold Deposit Scheme of 1999, and will be open to all resident Indians, including individuals, Hindu Undivided Families, Trusts, mutual funds and exchange-traded funds.
The minimum deposit shall be 30 grams of 995 fineness, while there is no maximum limit. The gold will be accepted at collection and purity testing centres certified by the Bureau of Indian Standards and notified by the government. Deposit certificates will be issued by banks and the principal and interest of the deposit will be denominated in gold.
While the circular did not mention the interest rate, designated banks will accept the gold deposits under short-term (1-3 years) bank deposits, as well as medium (5-7 years) and long-term (12-15 years) government deposit schemes.
Short-term deposits will be accepted by banks on their own account and medium and long -term deposits will be on behalf of the government. Depositors will have the provision for premature withdrawal subject to a minimum lock-in period and penalty.
The list of collection centres and refiners is currently being finalised and will be notified soon.
The finance ministry had announced the scheme on September 17.
“Interest on deposits will start accruing from the date of conversion of gold deposited, or 30 days after the receipt of gold at the collection centres, whichever is earlier,” the circular said. Designated banks can sell the gold to MMTC Ltd for minting India Gold Coins and to jewellers, or sell it to other banks participating in the GMS. Gold under medium and long term will be auctioned by MMTC and the proceeds credited to the government.