India's gold monetization scheme draws mixed response

MUMBAI (Scrap Monster): The government proposal to attract tonnes of household and institutional gold into bank deposits has drawn mixed response. According to formal guidelines announced to the proposed gold monetization schemes, customers are allowed to deposit even smaller quantities of gold jewellery or bullion with the bank, for which they will be provided handsome rate of interest.

The scheme allows banks to consider these gold deposits as part of their reserves. Banks are also allowed to sell the deposited gold to generate foreign currency, which could then be used for lending to traders. They could also convert the gold into coins and sell them. In addition, banks could also lend gold to jewellers at higher rates. However, banks fear that the cost of the deposit plan could not be covered unless the government comes up with some form of subsidy. Further, the interest rate on gold deposits could be fixed only after proper assessment of costs in terms of risks involved.

Meantime, All India Gems and Jewellery Trade Federation (GJF) called the government’s gold monetization scheme ‘lacklustre’. According to Ashok Minawala, Director, GJF, only high interest rates in the range of 3% to 4% could attract gold investment. Any complicated procedure in opening gold deposits with bank may deter Indian households from parting with their gold holdings. On the other hand, banks may find it extremely difficult to offer high interest rates considering the costs involved with refining, assaying and distribution.

The industry body also demanded reduction in gold melting charges. The draft released by the Ministry of Finance had fixed melting charges at Rs 500 per lot for up to 100 grams and Rs 100 per lot for every additional 1000 gram. According to GJF, the initially fixed melting charges are too high and must be reduced by at least 35% to make it more customer-friendly. Fixation of melting charge concerns should make the gold deposit scheme acceptable to customers, it added.