Facts Explained Gold Monetization Scheme Deposit Gold in Bank to earn interest
The government on Tuesday announced details of a gold monetization scheme (GMS) that will encourage Indians to vest the gold in their possession with banks and earn interest on it.
Majority Indians keep the gold in physical form and at present the country’s gold holdings are estimated at some 20,000 tonnes.
The guidelines have been notified nearly three months after the scheme was announced by Finance Minister Arun Jaitley in the Union Budget.
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.
Following are the important facts , objectives of the Gold Monetization Scheme
Step One -
To mobilize the gold held by households and institutions in the country.
2-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.
To be able to reduce reliance on import of gold over time to meet the domestic
Purity Testing Centres:
There are at present 350 Hallmarking Centres that are Bureau of Indian Standards (BIS) certified spread across various parts of the country
These centres may not necessarily be jewellers.
They are engaged in certifying the purity of the gold that the jewellers manufacture on a daily basis and for which they charge a fee from the jewellers. These Hallmarking Centres will act as ‘Purity Testing Centres’ for the GMS as they are well equipped to conduct a test of purity of the jewellery in a short span of time.
In a Purity Testing Centre, a preliminary XRF machine-test will be conducted to tell the customer the approximate amount of pure gold. If the customer agrees, he will have to fill-up a Bank/KYC form and give his consent for melting the gold. If the customer does not agree to the XRF machine test, he can take his
jewellery back at this stage. The time spent by the customer will be
about 45 minutes in the centre up till this stage.
Fire Assay Test:
After receiving the customer’s consent for melting the
gold for conducting a further test of purity, at the same collection
centre, the gold ornament will then be cleaned of its dirt, studs, meena
etc. The studs will be handed-over to the customer there itself. Net
weight of the jewellery will be taken after such removals and told to the
customer.Then, right in front of the customer the jewellery will be
melted and through a fire assay, its purity will be ascertained. These
centres have viewing galleries from where the customer can see the
entire process. The time taken is expected not to exceed 3-4 hours.
Deposit of Gold:When the results of the fire assay are told to the
customer, he has a choice of either refusing to accept, in which case he
can take back the melted gold in the form of gold bars, after paying a
nominal fee to that centre; or he may agree to deposit his gold (in
which case the fee will be paid by the bank). If the customer agrees to
deposit the gold, then he will be given a certificate by the collection
centre certifying the amount and purity of the deposited gold.
Conditions:The minimum quantity of gold that a customer can bring is
proposed to be set at 30 grams, so that even small depositors are
encouraged. Gold can be in any form(bullion or jewellery).
Second Step -
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.
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).
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 lockin period will be allowed.
Tax Exemption -
III. Transfer of Gold to the Refiners 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.
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.
Utilization of Deposited Gold For the services provided by the refiners, they will be paid a fee by the banks, as decided by them, mutually.
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.
Bank may convert mobilized gold into coins for onward sale to
Banks to buy and sell on domestic commodity exchanges,
where mobilized gold can be delivered.
Lending to jewellers -
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.
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.
The interest rate charged by the banks will have to cover the following -
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.
Below is the diagram showing Gold Monetization Scheme -
Reality views by sm -
Tuesday, 19 May 2015
Tags - Gold Monetization Scheme Bank Interest Deposit