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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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