In exercise of the powers conferred on the reserve bank of India under the provisions of section 35A of the banking regulation act, 1949, the RBI has issued directions to all the scheduled commercial banks (excluding regional rural banks) regarding the “Gold Monetization Scheme” in pursuance of the central government notification in this regard. This direction is called ‘The Reserve Bank of India (Gold Monetization Scheme) Direction, 2015.
This “Gold Monetization Scheme” is the modified version of the existing ‘gold deposit scheme, 1999” and the ‘gold metal loan scheme’. It is intended to mobilise the gold held by the households and institutions of the country and facilitate its use for productive purposes, and in the long run, to reduce the country’s reliance on the import of gold.
- Under these directions, the RBI has put forth the definitions of the relevant terms in connection with this scheme in section 1.3 of chapter 1 of the directions. It has defined the terms like Collection and Purity Testing Centre (CPTC),Medium and Long Term Government Deposit (MLTGD), Nominated bank, Short Term Bank Deposit (STBD), etc.
- Under the provisions of section 2.1 the basic features of the scheme has been provided.The interest and the principal payments to be made on the gold deposits under the scheme are to be denominated in gold. Here, all deposits under the scheme shall be made at the CPTC, however at their discretion banks can use the stock of the gold as part of their statutory liquidity ratio (SRL) requirement, under which they will have to make at least 21.5% of their investments in government bonds.
- All the gold deposits will be subject to the cash reserve ratio (CRR) requirements under which the banks now have to maintain 4% of deposits as interest free buffer with the central bank.
- The interest on the deposits under this scheme will start accruing from the date of conversion of gold deposited into tradable gold bars after refinement or 30 days after the receipt of gold at the CPTC or the bank’s designated branch, as the case may be, whichever may be earlier.
- The period during which the gold deposit is received and the date when the interest starts to accrue on the gold so deposited will be treated as an item in safe custody held by the designated bank.
- The day when the gold deposited starts accruing interest, the designated banks shall translate the gold liabilities and assets in Indian rupees by crossing the London AM fixing for the gold i.e. the USD rate with the rupee-US Dollar reference rate as announced by RBI on that day. Now the prevalent custom duty for import of gold will be added to the above value to calculate the final value of gold.
- The designated banks need to submit an annual report for the monthly data on the GOLD MONETIZATION SCHEME to the RBI in the prescribed format.
Under the provisions of section2.1.2, the procedure for the acceptance of deposits has been prescribed. Here only the minimum amount of deposit has been prescribed to 30 grams of raw gold of 995 fineness, without any set maximum cap on the quantity that can be deposited. It is specified in the directions that all the gold that have been tendered under the scheme will be compulsorily assayed at the CPTC only.
The guidelines have specified that the Bureau of Indian Standards will certify all the gold, which will be accepted at the collection and purity testing centres (CPTC), and the central government under the scheme would notify it.
As per these directions, the banks are allowed to accept three kinds of deposits under this scheme-
- A short term deposit with maturity ranging from one to three years,
- A medium term deposit with the maturity ranging between five to seven years,
- A long-term deposit maturing in the range of twelve to fifteen years.
The banks which will accept the gold under the short-term category will be able to sell or lend it to the state owned Metals and Minerals Trading Corporation of India(MMTC LTD) or the jewelers. Here the banks may also chose to lend it to other banks participating in this scheme.
The RBI has issued clear directions to the designated banks to have in place a suitable risk management mechanism, including appropriate limits, to manage the risk arising from the gold price movements in respect of the net exposure to gold at their end.
In case of the short-term deposits, the depositors have the option of redemption, for the principle deposit and the interest earned, either in cash that is equivalent to the amount in rupees of the weight of the gold deposited at prevailing prices at the time of redemption or in terms of the gold equal to the weight of the gold so deposited, which will have to be exercised at the time of making the deposit with the designated center.The redemption of the fractional quantity particularly where any standard gold bar or coin is not available, will be by payment of the amount in cash.
For medium and the long-term deposits, redemption will be done only in cash, which will be equal to the value of gold in rupee terms of the weight of the gold so deposited at the prices prevailing at the time of redemption. Here the interest earned will be based on the value of gold at the deposit on the interest rate that will be decided from time to time.