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Banking > Articles> Gold Deposit Scheme

Gold Deposit Scheme

Banks authorized by the Reserve Bank to deal in gold and have the required infrastructure for managing the scheme; expertise/experience in gold business and proper risk management systems may launch the Gold Deposit Scheme. Each bank will, within the framework set out by the Reserve Bank guidelines, devise a scheme in accordance with its own assessment of the market. Banks proposing to introduce a gold deposit scheme will need to take the Reserve Bank approval for introducing the scheme. 

The Scheme seeks to provide depositors the opportunity to earn interest on their idle gold holdings along with the benefits of safety and security of holding gold without any cost. Resident Indians (individuals, HUF, trusts, companies) can invest in the scheme. Joint tenders may be accepted and more than one certificate issued in the case of joint holders.

Under the scheme, banks can either issue a passbook or a certificate/bond, which will be transferable by endorsement and delivery. The banks will ensure to issue the passbook or certificate for deposit of gold to the depositor within 90 days from the date of receipt of gold. The passbook/certificate will indicate, inter alia, the name of the depositor/s, quantum of gold deposit in grams, the date of deposit, the date of maturity and the interest payable on the deposit. Nomination facility will be allowed on the lines of the other usual rupee deposit schemes. There will be an initial lock-in period, which will be decided by the banks. 

Individual banks will be free to fix the interest rates in tune with their own costing considerations. Interest will be payable in cash at fixed intervals or at maturity as decided by the bank. The deposits may be made available within a maturity range from three to seven years. Delivery at
maturity will be in standard gold bar form of .995 fineness or in rupees equivalent to the price of gold as on that date at the option of the depositor, to be exercised at the time of application or once during the tenure of the bonds.

Premature payment/encashment in cash equivalent to the price of gold as on the date of encashment or in gold would be allowed after the initial lock-in period. Banks may decide the penalty/swap cost to be levied on such withdrawals depending on the period for which the deposit has run. Rupee loans may be given against collateral of gold deposits.

Scheme will be open for investment by resident Indians. Under the scheme, banks will either issue a passbook or a certificate or bond which will be transferable by endorsement and delivery. Banks will be free to fix their own interest rates on the gold deposit scheme. The scheme will have maturity range from 3 to 7 years with an initial lock-in period to be specified by each bank.

Rupee loans will be available against collateral of the gold deposits. The scheme will be open-ended and will be available on tap. To ensure wide reach for the scheme, banks which fulfil these criteria but have limited branch network, may appoint other banks having the necessary infrastructure for collection, storage and transportation of gold as collection agents only. 

Other features of scheme: 
The operation of the Scheme will be open-ended, available on tap until further notice. 

Assay: Gold (bars, coins, jewelry, etc.) will be accepted in scrap form only. There will be a preliminary assay to ascertain gold content/caratage in jewelry by a non-destructive technique such as X-Ray/karatmeter followed by a foolproof method like fire assay. The depositor may be given the option to withdraw the tender depending on the results of the preliminary assay. If the option to withdraw is exercised, banks may consider levying a nominal charge to defray the cost of preliminary assay. For assaying, banks may enter into arrangements with existing units, or use the assaying infrastructure being jointly set up by the designated banks.
Deployment & export/import of Gold: 
For the purpose of the scheme, banks have been allowed to export/import of gold scrap/refined gold which will be exempt from Customs duty. Banks have also been permitted to make payment in foreign exchange for refining charges, including cost of insurance, transportation, etc., subject to Exchange Control regulations. Banks may deploy gold mobilized under the scheme as gold loans to domestic jewelry industry, gold loans to jewelry exporters, outright sale of gold domestically, sale of gold to other nominated banks. 

Facilities to Banks:
Banks would be required to put in place suitable risk management mechanisms to hedge the price risk arising out of gold price movements. Banks are permitted to enter into forward contracts in India for buying and selling of gold with only those banks which are authorized by the Reserve Bank to import gold. Banks have also been allowed to access the international exchanges, London Bullion Market Association or make use of over-the-counter contracts to hedge exposures to bullion prices subject to the Exchange control regulations. Banks would need to put in place suitable accounting systems, internal control and audit mechanisms and disclosure norms to cover all its operations in respect of gold including the Gold Deposit Scheme. 
Authorized banks will be exempted from maintaining the cash reserve ratio on liabilities under gold deposits mobilized in India. In view of multiple prescriptions, however, banks will have to maintain a minimum CRR of 3.0 per cent on total net demand and time liabilities (including zero CRR
liabilities). The authorized banks will have to maintain SLR of 25.0 per cent on liabilities under the gold deposit scheme. It may be noted that under the present law, banks have to maintain a minimum of 25.0 per cent SLR. 

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