Excel for
Chartered Accountants

The Finance Minister in his budget speech for the Union Budget 2015 - 16 made the following announcement:

"India is one of the largest consumers of gold in the world and imports as much as 800-1000 tonnes of gold each year. Though stocks of gold in India are estimated to be over 20,000 tonnes, most of this gold is neither traded, nor monetized. Keeping this in view, the government in Budget 2015-16 has announced the Gold Monetization Scheme which will replace both the present Gold Deposit and Gold metal Loan Schemes. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold"

Accordingly, the following Draft Scheme has prepared to invite view and comments from public. (Click Here >>)

Draft Gold Monetization Scheme

I Objective
The objectives of the Gold Monetization scheme are:
i To mobilize the gold held by households and institutions in the country.
ii To provide a fillip to the gems and jewellery sector in the country by making gold available as raw material on loan from the banks

III Scope
The scheme requires a vast set-up of infrastructure for facilitating easy and secure handling of gold. For this reason, it may be possible to launch it initially only in selected cities. Over time, as the infrastructure for assaying and refining of gold develops, the scheme can be extended to other cities

IV Scheme
The draft outline of the scheme detailed in this section, has been prepared after due deliberations and consultations with various stakeholders which includes banks, refineries, hallmarking centres, jewellers’ associations; RBI; and various government departments. A schematic representation of the scheme is at Annexure-I

Draft GMS

I Purity Verification and Deposit of Gold

II Opening of Gold Savings Account with the banks.

• Gold Savings Account: When the customer produces the certificate of gold deposited at the Purity Testing Centre, the bank will in turn open a ‘Gold Savings Account’ for the customer and credit the ‘quantity’ of gold into the customer’s account. Simultaneously, the Purity Verification Centre will also inform the bank about the deposit made.
• Interest  payment  by  banks: The  bank  will  commit  to  paying  an interest to the customer which will be payable after 30/60 days of opening of the Gold Savings Account. The amount of interest rate to be given is proposed to be left to the banks to decide. Both principal and interest to be paid to the depositors of gold, will be ‘valued’ in gold. For example if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 gms.
• Redemption: The customer will have the option of redemption either in cash or in gold, which will have to be exercised in the beginning itself (that is, at the time of making the deposit).
• Tenure: The tenure of the deposit will be minimum 1 year and with a roll out in multiples of one year. Like a fixed deposit, breaking of lock- in period will be allowed.
• Tax Exemption: In the Gold Deposit  Scheme (1999), the customers received exemption from Capital Gains Tax, Wealth tax and Income Tax. Similar tax exemptions are likely to be made available to the customers in the GMS after due examination.

III Transfer of Gold to the Refiners

• Refineries: At present there are about 32 refineries in the country. The laboratories of some of  these refineries are NABL  accredited  which means that the process that they adopt is certified.BIS has been asked by this Department to ascertain if it can conduct accreditation of the products being produced in these refineries also.
• Transfer of gold to refineries: Purity Testing Centres will send the gold to the refiners. The refiners will keep the gold in their ware-houses, unless the banks prefer to hold it themselves.
• Payment : For the services provided by the refiners, they will be paid a fee by the banks, as decided by them, mutually.

IV Utilization of Deposited Gold

• CRR/SLR : To incentivize banks, it is proposed that they may be permitted to deposit the mobilized gold as part of their CRR/SLR requirements with RBI. This aspect is still under examination.
• Foreign Currency: Banks may sell the gold to generate foreign currency. The foreign currency thus generated can then be used for onward lending to exporters / importers.
• Coins : Bank may convert mobilized gold into coins for onward sale to their customers
• Exchanges: Banks to buy and sell on domestic commodity exchanges, where mobilized gold can be delivered.
• Lending to jewellers: For lending to jewelers

V Lending the Gold to the Jewellers

• Gold Loan Account: The jewellers, on the basis of the terms and conditions of the banks, will get a Gold Loan Account opened at the bank.
• Delivery of gold to jewellers: When a gold loan is sanctioned, the jewellers will receive physical delivery of gold from the refiners. The banks will in turn make the requisite entry in the jewellers’ Gold Loan Account.
• Interest received by banks: The interest rate charged by the banks will have to cover the following:

-        Interest rate paid to the depositors of gold

-        Fee paid to the refiners and Purity Verification Centres.

-        Profit margin of the banks

-        The banks can directly get gold from the international market on a consignment basis and lend it to the jewellers. If this route is more lucrative, then the entire purpose will get defeated. Thus, this aspect will also have to be kept in mind, while deciding the interest rate.

VI MoU between Banks, Refiners and Purity Testing Centres

• The banks will enter into a tripartite MoU with refiners and purity testing centres, that are selected by them to be their partners in the scheme.
• The MoU will clearly lay down the details regarding payment of fee, services to be provided, standards of service and the details of the arrangements between the banks, refiners and purity testing centres.

Draft Gold Monetization Scheme-Consent for Melting the Gold/Jewellery for Purity Test is Compulsory |20-05-2015|