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Gold Monetisation Scheme

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<p>  Gold can be submitted in any form (bullion,  jewellery etc) but the amount deposited with the bank is calculated on the  basis of the pure gold content of that deposit (after removing the weights of  precious stones in jewellery etc.), which is verified through an accredited  assayer. Both principal and interest to be paid to the depositors of gold, will  be &lsquo;valued&rsquo; in gold. For example if a customer deposits 100 gms of gold and  gets 1 per cent interest, then, on maturity he has a credit of 101 gms. The  customer will have the option of redemption either in cash or in gold, which  will have to be exercised in the beginning itself (at the time of making the  deposit). </p>
 
<p>  Gold can be submitted in any form (bullion,  jewellery etc) but the amount deposited with the bank is calculated on the  basis of the pure gold content of that deposit (after removing the weights of  precious stones in jewellery etc.), which is verified through an accredited  assayer. Both principal and interest to be paid to the depositors of gold, will  be &lsquo;valued&rsquo; in gold. For example if a customer deposits 100 gms of gold and  gets 1 per cent interest, then, on maturity he has a credit of 101 gms. The  customer will have the option of redemption either in cash or in gold, which  will have to be exercised in the beginning itself (at the time of making the  deposit). </p>
  
Union Cabinet approved the Gold Monetization Scheme in September 2015 and Reserve Bank of India (RBI) issued the detailed guidelines -[https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10084&Mode=0 Reserve Bank of India (Gold Monetization Scheme) Direction, 2015]- for the implementation of the Scheme on 22 October 2015.  
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Union Cabinet approved the Gold Monetization Scheme in September 2015 and Reserve Bank of India (RBI) issued the detailed guidelines -[https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10084&Mode=0 Reserve Bank of India (Gold Monetization Scheme) Direction, 2015]- for the implementation of the Scheme on 22 October 2015. Certain modifications were made to the Scheme Guidelines on 21 January 2016.
  
 
Only Resident Indians (Individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies) can make deposits under the scheme, either individually or jointly. While the minimum deposit at any one time shall be raw gold (bars, coins, jewellery excluding stones and other metals) equivalent to 30 grams of gold of 995 fineness, there is no maximum limit for deposit under the scheme.All Scheduled Commercial Banks (excluding RRBs) can accept these deposits.
 
Only Resident Indians (Individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies) can make deposits under the scheme, either individually or jointly. While the minimum deposit at any one time shall be raw gold (bars, coins, jewellery excluding stones and other metals) equivalent to 30 grams of gold of 995 fineness, there is no maximum limit for deposit under the scheme.All Scheduled Commercial Banks (excluding RRBs) can accept these deposits.
  
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Gold Monetisation Scheme was launched on 5th November, 2015 and till December 10, 2016 a total of 5781 Kilograms of Gold has been mobilized under the
 +
Gold Monetisation Scheme including those raised from a few temples. It is not mandatory for temples to deposit in the scheme.
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<p>&nbsp;</p>
 
<p>&nbsp;</p>
 
<p><strong>Objectives </strong><br>
 
<p><strong>Objectives </strong><br>
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<ul>
 
<ul>
 
   <li><strong>Institutions  Concerned:</strong> The banks will enter  into a tripartite Legal Agreement with refiners and Collection and Purity  Testing Centres that are selected by them to be their partners in the scheme.</li>
 
   <li><strong>Institutions  Concerned:</strong> The banks will enter  into a tripartite Legal Agreement with refiners and Collection and Purity  Testing Centres that are selected by them to be their partners in the scheme.</li>
   <li><strong>Collection,  Purity Verification and Deposit of Gold:</strong> Out of the 331 Assaying and Hallmarking Centres spread across various parts of  the country, those which will meet criteria as specified by Bureau of Indian  Standards (BIS) will only be allowed to act as Collection and Purity  Testing  Centres for the purpose of this  scheme. The number of these centres is expected to increase with time. The  minimum quantity of gold that a person can bring is proposed to be set at 30  grains. Gold can be in any form (bullion or jewellery). </li>
+
   <li><strong>Collection,  Purity Verification and Deposit of Gold:</strong> Out of the 331 Assaying and Hallmarking Centres spread across various parts of  the country, those which will meet criteria as specified by Bureau of Indian  Standards (BIS) will only be allowed to act as Collection and Purity  Testing  Centres for the purpose of this  scheme. The number of these centres is expected to increase with time. The  minimum quantity of gold that a person can bring is proposed to be set at 30  grains (corrected upto three decimals). Gold can be in any form (bullion or jewellery) and of any purity standards. </li>
   <li><strong>Creation  of Gold Savings Account:</strong> In the revamped  scheme, a Gold Savings Account will be opened by depositors at any time with Scheduled  Commercial Banks, after subjecting themselves to the Know Your Client (KYC)  norms, as applicable. This account would be denominated in grams of gold.</li>
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   <li><strong>Creation  of Gold Savings Account:</strong> In the revamped  scheme, a Gold Savings Account will be opened by depositors at any time with Scheduled  Commercial Banks, after subjecting themselves to the [http://arthapedia.in/index.php?title=Know_Your_Client_(KYC) Know Your Client (KYC)  norms], as applicable. This account would be denominated in grams of gold.</li>
   <li><strong>Transfer  of Gold to Refiners:</strong> Collection and purity  testing centres will send the gold to the refiners. The refiners will keep the  gold in their warehouses, unless banks prefer to hold it themselves. For the  services provided by the refiners, they will be paid a fee by the banks, as  decided by them, mutually. The depositor will not be charged. </li>
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   <li><strong>Transfer  of Gold to Refiners:</strong> Collection and purity  testing centres will send the gold to the refiners. The refiners will keep the  gold in their warehouses, unless banks prefer to hold it themselves. For the  services provided by the refiners, they will be paid a fee by the banks, as  decided by them, mutually. The depositor will not be charged. Gold depositors can also give their gold directly to the refiner rather than only through the Collection and Purity Testing Centres (CPTCs). This will encourage the bulk depositors including Institutions to participate in the scheme. </li>
 
   <li><strong>Features  of Gold Deposits:</strong></li>
 
   <li><strong>Features  of Gold Deposits:</strong></li>
  
 
   <li style="margin-left:25px;"><strong>Tenure of  Deposits: </strong>The deposits under the  revamped scheme can be made for a short-term period of 1-3 years (with a roll  out in multiples of one year); a medium-term period of 5-7 years and a  long-term period, of 12-15 years (as decided from time to time). While the short term deposits will be accepted by banks on their own account, the latter will be on behalf of Government of India. In other words, the deposit under medium and long term will not be reflected in the balance sheet of the designated banks as they are accepted by the banks on behalf of the Central Government. The receipts issued by the collection and purity testing centers and the deposit certificate issued by the banks state this clearly. Thus, medium and long term deposits are the liability of the Central Government and the banks will hold this gold deposit on behalf of Central Government until it is transferred to such person as may be determined by the Central Government. Like a fixed  deposit, breaking of lock-in period will be allowed in either of the options  and there would be a penalty on premature redemption (including part  withdrawal).</li>
 
   <li style="margin-left:25px;"><strong>Tenure of  Deposits: </strong>The deposits under the  revamped scheme can be made for a short-term period of 1-3 years (with a roll  out in multiples of one year); a medium-term period of 5-7 years and a  long-term period, of 12-15 years (as decided from time to time). While the short term deposits will be accepted by banks on their own account, the latter will be on behalf of Government of India. In other words, the deposit under medium and long term will not be reflected in the balance sheet of the designated banks as they are accepted by the banks on behalf of the Central Government. The receipts issued by the collection and purity testing centers and the deposit certificate issued by the banks state this clearly. Thus, medium and long term deposits are the liability of the Central Government and the banks will hold this gold deposit on behalf of Central Government until it is transferred to such person as may be determined by the Central Government. Like a fixed  deposit, breaking of lock-in period will be allowed in either of the options  and there would be a penalty on premature redemption (including part  withdrawal).</li>
 
   <li style="margin-left:25px;"><strong>Interest rate:</strong> The amount of interest rate payable for deposits made for the short-term period  would be <em>decided by banks</em> on basis of  prevailing international lease rates, other costs, market conditions etc. and  will be <em>denominated in grams of gold</em>.  For the medium and long-term deposits, the rate of interest (and fees to be  paid to the bank for their services) will be <em>decided by the government</em>, in consultation with the RBI from time  to time. The interest rate for the medium and long-term deposits will be <em>denominated and payable in rupees</em>, based  on the value of gold deposited.</li>
 
   <li style="margin-left:25px;"><strong>Interest rate:</strong> The amount of interest rate payable for deposits made for the short-term period  would be <em>decided by banks</em> on basis of  prevailing international lease rates, other costs, market conditions etc. and  will be <em>denominated in grams of gold</em>.  For the medium and long-term deposits, the rate of interest (and fees to be  paid to the bank for their services) will be <em>decided by the government</em>, in consultation with the RBI from time  to time. The interest rate for the medium and long-term deposits will be <em>denominated and payable in rupees</em>, based  on the value of gold deposited.</li>
   <li style="margin-left:25px;"><strong>Redemption: </strong>For  short-term deposits, the depositor will have the option of redemption, for the  principal deposit and interest earned, either in cash (in equivalent rupees of  the weight of deposited gold at the prices prevailing at the time of  redemption) or in gold (of the same weight of gold as deposited), which will  have to be exercised at the time of making the deposit. In case the customer  likes to change the option, it will be allowed at the bank's discretion.  Redemption of fractional quantity (for which a standard gold bar/coin is not  available) would be paid in cash. For medium and long-term deposits, redemption  will be only in cash, in equivalent rupees of the weight of the deposited gold  at the prices prevailing at the time of redemption. The interest earned will  however be based on the value of gold at the deposit on the interest rate as  decided. Any premature redemption will be in Indian Rupee equivalent or gold at the discretion of the bank.</li>
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   <li style="margin-left:25px;"><strong>Redemption: </strong>For  short-term deposits, the depositor will have the option of redemption, for the  principal deposit and interest earned, either in cash (in equivalent rupees of  the weight of deposited gold at the prices prevailing at the time of  redemption) or in gold (of the same weight of gold as deposited), which will  have to be exercised at the time of making the deposit. In case the customer  likes to change the option, it will be allowed at the bank's discretion.  Redemption of fractional quantity (for which a standard gold bar/coin is not  available) would be paid in cash. For medium and long-term deposits, it was initially prescribed that redemption  will be only in cash, in equivalent rupees of the weight of the deposited gold  at the prices prevailing at the time of redemption. The interest earned will  however be based on the value of gold at the deposit on the interest rate as  decided. On [https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10319&Mode=0 31 March 2016] it was prescribed that in the case of medium and long term gold deposits, the redemption of principal at maturity would, at the option of the depositor, be either in Indian Rupee equivalent of the value of deposited gold at the time of redemption, or in gold. Where the redemption of the deposit is in gold, an administrative charge at a rate of 0.2% of the notional redemption amount in terms of INR will be collected from the depositor. However, the interest accrued on MLTGD shall be calculated with reference to the value of gold in terms of Indian Rupees at the time of deposit and will be paid only in cash. Any premature redemption will be in Indian Rupee equivalent or gold at the discretion of the bank.Any Medium Term Deposit will be allowed to be withdrawn after 3 years and any Long Term Deposit after 5 years. These will be subject to a reduction in the interest payable. </li>
  
 
   <li><strong>SLR/CRR compliance:</strong>The short term bank deposits will attract applicable cash reserve ratio (CRR) and statutory liquidity ratio (SLR). However, the stock of gold held by the banks will count towards the general SLR requirement.</li>
 
   <li><strong>SLR/CRR compliance:</strong>The short term bank deposits will attract applicable cash reserve ratio (CRR) and statutory liquidity ratio (SLR). However, the stock of gold held by the banks will count towards the general SLR requirement.</li>
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Banks are advised by RBI to put in place a suitable risk management mechanism, including appropriate limits, to manage the risk arising from volatile gold price movements in respect of their net exposure to gold. For this purpose, they have 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 guidelines issued by the Reserve Bank.
 
Banks are advised by RBI to put in place a suitable risk management mechanism, including appropriate limits, to manage the risk arising from volatile gold price movements in respect of their net exposure to gold. For this purpose, they have 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 guidelines issued by the Reserve Bank.
  
   <li><strong>Tax  Exemption:</strong> Tax exemptions, same  as those available under GDS would be made available to customers, as  applicable. In the Gold Deposit Scheme (1999), the customers received exemption  from Capital Gains Tax, Wealth tax and Income Tax.</li>
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   <li><strong>Tax  Exemption:</strong> Tax exemptions, same  as those available under GDS would be made available to customers, as  applicable. In the Gold Deposit Scheme (1999), the customers received exemption  from Capital Gains Tax, Wealth tax and Income Tax.Tax exemptions under the GMS include exemption of interest earned on the gold deposited and exemption from capital gains made through trading or at redemption. In course of an Income Tax Search u/s 132 of the Income Tax Act,1961, gold jewellery to the extent of 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family, would not be seized by tax authorities.</li>
 
  <li><strong>Grievance Redressal:</strong> Complaints against banks regarding any discrepancy in issuance of receipts and deposit certificates, redemption of deposits, payment of interest etc. will be handled first through the bank’s grievance redress process and then by the Reserve Bank’s Banking Ombudsman.</li>
 
  <li><strong>Grievance Redressal:</strong> Complaints against banks regarding any discrepancy in issuance of receipts and deposit certificates, redemption of deposits, payment of interest etc. will be handled first through the bank’s grievance redress process and then by the Reserve Bank’s Banking Ombudsman.</li>
 
   <li><strong>Gold  Reserve Fund:</strong> The risk of gold price  changes will be borne by the Gold Reserve Fund that is being created. The  difference between the current borrowing cost for the Government and the  interest rate paid by the Government under the medium/long term deposit will be  credited to the Gold Reserve Fund. The benefit to the Government is in terms of  reduction in the cost of borrowing, which will be transferred to the Gold  Reserve Fund.</li>
 
   <li><strong>Gold  Reserve Fund:</strong> The risk of gold price  changes will be borne by the Gold Reserve Fund that is being created. The  difference between the current borrowing cost for the Government and the  interest rate paid by the Government under the medium/long term deposit will be  credited to the Gold Reserve Fund. The benefit to the Government is in terms of  reduction in the cost of borrowing, which will be transferred to the Gold  Reserve Fund.</li>
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     <td valign="top"><ul>
 
     <td valign="top"><ul>
 
       <li>For short-term    deposits, the customer will have the <strong>option    of redemption, either in cash or in gold</strong>. </li>
 
       <li>For short-term    deposits, the customer will have the <strong>option    of redemption, either in cash or in gold</strong>. </li>
       <li>For medium to    long-term deposits, redemption will be <strong>only   in cash</strong>.</li>
+
       <li>For medium to    long-term deposits, redemption of principal will be <strong> in gold (subject to administrative charges) or cash but interest would be paid only in cash.</strong>.</li>
 
     </ul></td>
 
     </ul></td>
 
   </tr>
 
   </tr>
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   <li><strong>Gold  Metal Loan Account:</strong> A Gold Metal Loan  Account, denominated in grams of gold, will be opened by the bank for jewellers.  The gold mobilized through the GMS or revamped GDS, under the short-term option, will  be provided to jewellers on loan, on the basis of the terms and conditions  set-out by banks, under the guidance of RBI. The banks can also purchase the gold auctioned under medium and long term tenure and extend GML to the jewellers.</li>
 
   <li><strong>Gold  Metal Loan Account:</strong> A Gold Metal Loan  Account, denominated in grams of gold, will be opened by the bank for jewellers.  The gold mobilized through the GMS or revamped GDS, under the short-term option, will  be provided to jewellers on loan, on the basis of the terms and conditions  set-out by banks, under the guidance of RBI. The banks can also purchase the gold auctioned under medium and long term tenure and extend GML to the jewellers.</li>
 
   <li><strong>Delivery  of gold to jewellers:</strong> When a gold loan  is sanctioned, The jewellers will receive the physical delivery of gold either from the refiners or from the designated bank, depending on the place where the refined gold is stored. The banks will, in turn, make the requisite entry in the jewellers&rsquo;  Gold Loan Account. </li>
 
   <li><strong>Delivery  of gold to jewellers:</strong> When a gold loan  is sanctioned, The jewellers will receive the physical delivery of gold either from the refiners or from the designated bank, depending on the place where the refined gold is stored. The banks will, in turn, make the requisite entry in the jewellers&rsquo;  Gold Loan Account. </li>
   <li><strong>Interest  received by banks:</strong> The interest rate  charged on the GML will be decided by banks, with guidance from the RBI.</li>
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   <li><strong>Interest  received by banks:</strong> The interest rate  charged on the GML will be decided by banks, with guidance from the RBI.Banks are free to hedge their positions in the case of short-term deposits.</li>
 
   <li><strong>Tenor:</strong> The tenor of the GML at present is 180 days. Given that the minimum lock-in  period for gold deposits will be one year, based on experience gained, this  tenor of GML may be re-examined in future and appropriate modifications made,  if required.</li>
 
   <li><strong>Tenor:</strong> The tenor of the GML at present is 180 days. Given that the minimum lock-in  period for gold deposits will be one year, based on experience gained, this  tenor of GML may be re-examined in future and appropriate modifications made,  if required.</li>
 
</ul>
 
</ul>
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</ul>
 
</ul>
  
 
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Government has also launched the dedicated website www.finmin.nic.in/swarnabharat and toll free number 18001800000, which provide all the information of the scheme.
  
  
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'''Also See'''
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* [http://arthapedia.in/index.php?title=Gold_Coin_/_Bullion_Scheme Gold Coin / Bullion Scheme]
  
  
 
==References:==
 
==References:==
*[https://www.rbi.org.in/scripts/PublicationDraftReports.aspx?ID=694 Report  of the &lsquo;Working Group to Study the Issues related to Gold Imports and Gold  Loans NBFCs in India&rsquo;] headed by KUB  Rao (Feb 2013).
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*[https://www.rbi.org.in/scripts/PublicationDraftReports.aspx?ID=694 Report  of the &lsquo;Working Group to Study the Issues related to Gold Imports and Gold  Loans NBFCs in India&rsquo;] headed by KUB  Rao (Feb 2013)
*Press Release on  &lsquo;Introduction of Gold Monetization Schemes&rsquo; dated [http://pib.nic.in/newsite/pmreleases.aspx?mincode=61 9th  September, 2015].
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*Press Release on  &lsquo;Introduction of Gold Monetization Schemes&rsquo; dated [http://pib.nic.in/newsite/pmreleases.aspx?mincode=61 9th  September, 2015]
*RBI Notification dated  5th October, 1999 on the [https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=80&Mode=0 Gold  Deposit Schemes].
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*RBI Notification dated  5th October, 1999 on the [https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=80&Mode=0 Gold  Deposit Schemes]
*RBI Notification dated  5th September, 2005 on the [https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=2499&Mode=0 Gold  Metal Loan scheme].  
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*RBI Notification dated  5th September, 2005 on the [https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=2499&Mode=0 Gold  Metal Loan scheme]
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*[https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10084&Mode=0 Reserve Bank of India (Gold Monetization Scheme) Direction, 2015] dated 22 October 2015
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*[http://finmin.nic.in/swarnabharat/gold-monetisation.html Swarnabharat Yojna Website]
  
  

Latest revision as of 11:47, 14 March 2017

Monetization refers to a process of converting a commodity into domestic currency– rupee. Gold Monetization refers to unlocking the value of gold in terms of rupee.

Gold Monetization Scheme (GMS) refers to a process wherein a depositor deposits gold (say jewellery, coin, etc.) with a bank which is then lent by the bank to its borrowers (say jewellery makers), after melting into gold bars. This is akin to a normal banking operation (like a savings bank account), but carried out in terms of gold instead of in rupee. 

GMS allows the depositors of gold to earn tax free market determined interest income (denominated in gold but recoverable either in gold or in rupee [mandatorily in rupee if it is deposited for a medium or long term]) from the pure gold they deposit with banks in their “Gold Savings Accounts” and permits the jewelers to obtain their raw material -gold bars created from the melting of the gold deposited with the banks- as loans in their “Metal account”.  In addition, Banks / other dealers would also be able to monetize their gold. 

Gold can be submitted in any form (bullion, jewellery etc) but the amount deposited with the bank is calculated on the basis of the pure gold content of that deposit (after removing the weights of precious stones in jewellery etc.), which is verified through an accredited assayer. Both principal and interest to be paid to the depositors of gold, will be ‘valued’ in gold. For example if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 gms. The customer will have the option of redemption either in cash or in gold, which will have to be exercised in the beginning itself (at the time of making the deposit).

Union Cabinet approved the Gold Monetization Scheme in September 2015 and Reserve Bank of India (RBI) issued the detailed guidelines -Reserve Bank of India (Gold Monetization Scheme) Direction, 2015- for the implementation of the Scheme on 22 October 2015. Certain modifications were made to the Scheme Guidelines on 21 January 2016.

Only Resident Indians (Individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies) can make deposits under the scheme, either individually or jointly. While the minimum deposit at any one time shall be raw gold (bars, coins, jewellery excluding stones and other metals) equivalent to 30 grams of gold of 995 fineness, there is no maximum limit for deposit under the scheme.All Scheduled Commercial Banks (excluding RRBs) can accept these deposits.

Gold Monetisation Scheme was launched on 5th November, 2015 and till December 10, 2016 a total of 5781 Kilograms of Gold has been mobilized under the Gold Monetisation Scheme including those raised from a few temples. It is not mandatory for temples to deposit in the scheme.

 

Objectives
The Gold Monetization Scheme (GMS) was announced in the Union Budget Speech of 2015-16 with the following objectives[1]:

 

Background
The basic idea behind the scheme is to mobilize the gold lying idle and put it to productive use. India is one of the largest consumers of gold in the world; however, it has to rely on imports to meet around 80 per cent of its demand for gold. Gold accounts for a preponderant share in the country’s trade balance. Gold imports contributed to nearly 30 per cent of trade deficit during 2009-10 to 2011-12. In this context, an idea that has gained currency is to monetize the gold which is lying idle with the households and other entities within India and make it available for re-use.

The Government announced the introduction of a Gold Monetisation Scheme in the Union Budget 2015-16. In pursuance to this, the Government prepared the draft guidelines for the Scheme which were placed on www.MyGov.in portal on 19th May, 2015 for public comments/suggestions. On 9th September, 2015, the Cabinet gave its approval for the introduction of the Gold Monetization Schemes (GMS). The detailed operational guidelines were issued by RBI on 22 October 2015.

Though GMS was announced in the Budget to replace the hitherto existing Gold Deposit Scheme (GDS) (1999) and Gold Metal Loan  (GML) Scheme (1998) as it is a combination of the best features of both the schemes, in the press release dated 9 September 2015 it is mentioned that GMS would consist of revamped GDS and GML. RBI in its guidelines later clarified that the GMS will replace the existing Gold Deposit Scheme, 1999. However, the deposits outstanding under the Gold Deposit Scheme will be allowed to run till maturity unless the depositors prematurely withdraw them. RBI also clarified that existing gold metal loan (GML) Scheme would continue parallel to the GMS linked GML. The existing Gold Deposit Scheme (GDS) is in the nature of a fixed deposit in gold. Under GDS, the customers (individuals and institutions) can deposit their idle gold (bullion, coin or jewellery in scrap form) with banks in return for safety, interest earnings and tax benefits. Interest is calculated in Gold currency (XAU) and paid in equivalent rupees. Banks may either issue a passbook/statement of account or a certificate/bond to the depositors for deposit of gold, which will be transferable by endorsement and delivery. Under Gold Metal Loans Scheme of 1998, nominated banks authorized to import gold could give Gold (Metal) loans to jewellery exporters and manufacturers for a period of 90 days. GMS integrates both the above schemes into one with some changes.

It was noted that the Gold Deposit scheme has met with limited success. According to the report of the KUB Rao Committee[2], some of the reasons are (i) high melting costs and (ii) very high ticket sizes. The report acknowledges the fact that in the scheme, since the customers do not get back the jewelleries deposited in its original form, therefore, it has met with limited acceptability in the Indian context, as people have emotional and sentimental attachments with their gold jewels which are lying with them for generations. Various reasons like the lack of infrastructure with the banks for running the scheme, limited number of bank branches authorized to operate GDS, high transaction cost, constraints on the minimum deposit amount etc. explain the limited reach and success of the GDS. The GMS was launched to correct these deficiencies.

 

The Operational Aspects of Gold Monetisation Scheme
The Gold Monetisation scheme consists of the revamped versions of the Gold Deposit Scheme (GDS) introduced in 1999 and the Gold Metal Loan Scheme (GML) introduced in 1998. The detailed operational mechanism alongwith revisions made to the existing schemes are mentioned below.

 

A)  Accepting of Gold Deposits - Revamped Gold Deposit Scheme

 

Thus, from the discussion above, it can be noted that the present scheme is an improvement over the previous version in various respects. The major differences have been summed-up in the table below:

S.No.   GDS (1999) Revamped GDS under Gold Monetisation Scheme
1 Objective To mobilize the gold held by households and institutions in the country
  • To mobilize the gold held by households and institutions
  • To put the gold thus mobilized into productive use.
  • The long-term objective is to reduce the country’s reliance on the import of gold to meet the domestic demand.
 
2 Infrastructure Reliance on the existing infrastructure with banks and Government Mints
  • Banks will be freed from handling physical gold and concentrate on their expertise of banking operations
  • Engage private sector refineries
  • Engage collection centres that are BIS certified
3 Minimum Deposit 500 grams of gold The minimum quantity of gold that a customer can bring is proposed to be set at 30 grams, so that even small depositors are encouraged
4 Time taken for purity verification Minimum 90 days 1 day
5 Tenure of deposit 6 months to 7 years Three options will be made available:
  • short-term : 1-3 years (with a roll out in multiples of one year);
  • medium-term : 5-7 years
  • long-term : 12-15 years
6 Redemption Only in gold
  • For short-term deposits, the customer will have the option of redemption, either in cash or in gold.
  • For medium to long-term deposits, redemption of principal will be in gold (subject to administrative charges) or cash but interest would be paid only in cash..
7 Utilization of gold The utilization of gold was not clearly specified in the scheme. Under medium and long-term deposit options, the deposited gold is proposed to be used for:
  • Auctioning
  • Replenishment of RBI’s Gold Reserves
  • Coins
  • Lending to jewellers

Under short-term deposit

  • Coins
  • Lending to jewellers

 

B) Lending of Gold deposited: Revamped Gold Metal Loan (GML) Scheme


As stated earlier, GMS expands on the framework of gold metal loan scheme. In addition to lending to jewellers, under GMS, the mobilized gold forms a part of reserves of RBI. The existing Gold (Metal) Loan (GML) Scheme operated by nominated banks will continue in parallel with GMS-linked GML scheme. All prudential guidelines for the existing GML Scheme as prescribed in the relevant RBI Master Circular as amended from time to time will also be applicable to the new Scheme.
GMS does not mean to take away the existing loan facilities offered against gold. Loan against gold is a loan product where owner of the gold can avail loan against it. On the other hand, in Gold Monetization Scheme the owner will earn income on the deposited gold and borrowers (jewellers) are getting gold as loans. These are two diverse products and Gold Monetization Scheme is seemed to have no material impact on the loan arrangement.

 

Benefits of the Gold Monetisation Scheme

Government has also launched the dedicated website www.finmin.nic.in/swarnabharat and toll free number 18001800000, which provide all the information of the scheme.


1. The Union Finance Minister shri Arun Jaitley in his Budget Speech observed that “ India is one of the largest consumers of gold in the world and imports as much as 800-1000 tonnes of gold each year.  Though stocks of gold in India are estimated to be over 20,000 tonnes, mostly this gold is neither traded, nor monetized.” In this context, he announced that the Government will “Introduce a Gold Monetisation Scheme, which will replace both the present Gold Deposit and Gold metal Loan Schemes.  The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account.  Banks/other dealers would also be able to monetize this gold.”

2. Working Group to Study the Issues related to Gold Imports and Gold Loans NBFCs in India headed by KUB Rao which submitted its report in Feb 2013.


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