While announcing several steps for monetising gold in his Budget 2015-16, Union Finance Minister Arun Jaitley stated that stocks of gold in India were estimated to be over 20,000 tonnes but mostly this gold was neither traded, nor monetised.
Mr. Jaitley proposed a Gold Monetisation Scheme, which would replace both the present Gold Deposit and Gold Metal Loan Schemes. He said the new scheme would 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 monetise this gold.
The Finance Minister also announced the development of an alternate financial asset, a Sovereign Gold Bond, as an alternative to purchasing metal gold. The bonds would carry a fixed rate of interest, and also be redeemable in terms of the face value of the gold, at the time of redemption by the holder of the bond.
Mr. Jaitley also announced that the Government shall commence work on developing an Indian Gold Coin, which will carry the Ashok Chakra on its face. Such an Indian Gold Coin would help reduce the demand for coins minted outside Indian, and also help to recycle the gold available in the country.
What is gold monetisation scheme?
It is a scheme that facilitates the depositors of gold to earn interest on their metal accounts. Once the gold is deposited in metal account, it will start earning interest on the same.
How it generally works?
When a customer brings in gold to the counter of specified agency or bank, the purity of gold is determined and exact quantity of gold is credited in the metal account. Customers may be asked to complete KYC (know-your-customer) process. The deposited gold will be lent by banks to jewellers at an interest rate little higher than the interest paid to customer.
How is the interest rate calculated?
Both principal and interest to be paid to the depositors of gold, will be ‘valued’ in gold. For example if a customer deposits 100 gm of gold and gets one per cent interest, then, on maturity he has a credit of 101 gram.
The interest rate is decided by the banks concerned.
What is the tenure?
The tenure of gold deposits is likely to be for a minimum of one year. The minimum quantity of deposits is pegged at 30 gram to encourage even small deposits. The gold can be in any form, bullion or jewellery.
How the redemption takes place?
Customer will have the choice to take cash or gold on redemption, but the preference has to be stated at the time of deposit.