Introduction of Gold Monetization Schemes
The Union Cabinet chaired by the
Prime Minister, Shri Narendra Modi, today gave its approval for introduction of
Gold Monetization Schemes (GMS), as announced in the Union Budget 2015-16.
The objective of introducing the
modifications in the schemes is to make the existing schemes more effective and
to broaden the ambit of the existing schemes from merely mobilizing gold held
by households and institutions in the country to putting this gold into
productive use. The long-term objective which is sought through this
arrangement is to reduce the country’s reliance on the import of gold to meet
domestic demand.
GMS would benefit the Indian gems and
jewellery sector which is a major contributor to India’s exports. In fiscal
year 2014-15, gems and jewellery constituted 12 per cent of India’s total
exports and the value of gold items alone was more than $13 billion (provisional figures).
The mobilized gold will also
supplement RBI’s gold reserves and will help in reducing the government’s
borrowing cost.
The revamped Gold Deposit Scheme
(GDS) and the Gold Metal Loan (GML) Scheme involves changes in the
scheme guidelines only. The risk of gold price changes will be borne
by the Gold Reserve Fund that is being created. The benefit to the Government
is in terms of reduction in the cost of borrowing, which will be transferred to
the Gold Reserve Fund.
The scheme will help in mobilizing
the large amount of gold lying as an idle asset with households, trusts and
various institutions in India and will provide a fillip to the gems and
jewellery sector. Over the course of time this is also expected to reduce the
country’s dependence on the import of gold. The new scheme consists of the
revamped GDS and a revamped GML Scheme.
Revamped Gold Deposit Scheme
Collection, Purity Verification and
Deposit of Gold under the revamped GDS:
Out of the 331 Assaying and
Hallmarking Centres spread across various parts of the country, those which
will meet criteria as specified by Bureau of Indian Standards (BIS)
will be allowed to act as Collection and Purity Testing 1 Centres for purity of
gold for the purpose of this scheme. The minimum quantity of gold that a
customer can bring is proposed to be set at 30 grains. Gold can be in any form
(bullion or jewellery). The number of these centres is expected to increase
with time.
Gold Savings Account:
In the revamped scheme, a Gold
Savings Account will be opened by customers at any time, with KYC norms, as
applicable. This account would be denominated in grams of gold.
Transfer of Gold to Refiners:
Collection and purity testing centres
will send the gold to the refiners. The refiners will keep the gold in their
ware-houses, unless banks prefer to hold it themselves. For the services
provided by the refiners, they will be paid a fee by the banks, as decided by
them, mutually. The customer will not be charged.
The banks will enter into a
tripartite Legal Agreement with refiners and Collection and Purity Testing
Centres that are selected by them to be their partners in the scheme.
Tenure:
The deposits under the revamped
scheme can be made for a short-term period of 1-3 years (with a roll out in
multiples of one year); a medium-term period of 5-7 years and a long-term
period, of 12-15 years (as decided from time to time). Like a fixed deposit,
breaking of lock-in period will be allowed in either of the options and there
would be a penalty on premature redemption (including part withdrawal).
Interest rate:
The amount of interest rate payable
for deposits made for the short-term period would be decided by banks on basis
of prevailing international lease rates, other costs, market conditions etc.
and will be denominated in grams of gold. For the medium and long-term
deposits, the rate of interest (and fees to be paid to the bank for their
services) will be decided by the government, in consultation with the RBI from
time to time. The interest rate for the medium and long-term deposits will be
denominated and payable in rupees, based on the value of gold deposited.
Redemption:
For short-term deposits, the customer
will have the option of redemption, for the principal deposit and interest
earned, either in cash (in equivalent rupees of the weight of deposited gold at
the prices prevailing at the time of redemption) or in gold (of the same weight
of gold as deposited), which will have to be exercised at the time of making
the deposit. In case the customer will like to change the option, it will be
allowed at the bank’s discretion. Redemption of fractional quantity (for which
a standard gold bar/coin is not available) would be paid in cash. For medium
and long-term deposits, redemption will be only in cash, in equivalent rupees
of the weight of the deposited gold at the prices prevailing at the time of
redemption. The interest earned will however be based on the value of gold at
the deposit on the interest rate as decided.
Utilization:
The deposited gold will be utilized
in the following ways:
·
Under medium and long-term deposit
·
Auctioning
·
Replenishment of RBIs Gold Reserves
·
Coins
·
Lending to jewelers
·
Under short-term deposit
·
Coins
·
Lending to jewelers
Tax Exemption: Tax exemptions, same as those available under GDS would be made
available to customers, in the revamped GDS, as applicable.
Gold Reserve Fund: The difference between the current borrowing
cost for the Government and the interest rate paid by the Government under the
medium/long term deposit will be credited to the Gold Reserve Fund.
Revamped Gold Metal Loan Scheme
Gold Metal Loan Account: A Gold Metal
Loan Account, denominated in grams of gold, will be opened by the bank for
jewelers. The gold mobilized through the revamped GDS, under the short-term
option, will be provided to jewellers on loan, on the basis of the terms and
conditions set-out by banks, under the guidance of RBI.
Delivery of gold to jewellers: When a gold loan is sanctioned,
the jewellers will receive physical delivery of gold from refiners. The banks
will, in turn, make the requisite entry in the jewellers’ Gold Loan Account. Interest
received by banks: The interest rate charged on the GML will be decided by
banks, with guidance from the RBI.
Tenor: The tenor of the
GML at present is 180 days. Given that the minimum lock-in period for gold
deposits will be one year, based on experience gained, this tenor of GML may be
re-examined in future and appropriate modifications made, if required.
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