The government will formulate a comprehensive policy to develop gold as an asset class, and the Gold Monetization Scheme will be revamped to enable people open a hassle-free gold deposit account.
The government will also establish a system of consumer-friendly and trade-efficient system of regulated gold exchanges in the country, said Finance Minister Arun Jaitley, in his Budget speech. The Gold Monetization Scheme (GMS) was unveiled by the Prime Minister on November 5, 2015.
It was aimed at reducing the annual import of bullion and encouraging re-circulation and re-monetisation of the huge domestic holdings of gold, estimated at about 25,000 tonnes.
Lack of incentives
Even though the GMS aimed at a modest volume of 1% of these holdings per annum, it hardly mobilised gold in double-digit tonnes, mostly due to lack of incentives for the various stakeholders, said James Jose, secretary, Association of Gold Refineries and Mints.
Whatever gold collected so far under GMS is mostly from temples and other institutions. Retail participation was very tardy.
The collection centres such as collection and purity testing centres (CPTCs) and gold refineries, in turn, are waiting for the green light from banks to start mobilising gold under GMS.
“The banks need to be incentivised to accept gold deposits from consumers and also be given avenues to deploy the collected gold profitably in long-term gold loan products,” said Mr. Jose.
“Banks are presently getting gold metal loans from international agencies, at interest rates of 1.5%, in dollar terms, and the government restricts such loans only for gold metal loans for exporter purposes,” Mr. Jose added. Banks would be motivated to mobilise GMS gold for gold metal loans to the domestic jewellery industry, and the existing GMS would be revamped and simplified to make it appealing for stakeholders. “The metal loans shall be denominated in terms of gold weight in grams, with a minimum lot of 1 kg. On maturity date, it shall be repaid /settled with equivalent quantity of gold, and not in money/rupees,” Mr. Jose added. He also suggested that the tenure of the metal loan could be one year.
On expiry of one year, the metal loan could be renewed, similar to working capital loans from banks.
Finance Ministry and the RBI, it is felt, should device and approve new gold metal loan products for banks to profitably deploy the GMS gold for longer periods.
