Changes announced to Gold Monetisation Scheme, minimum deposit cut to 10 gm

By Suneeta Kaul

Last week, the Union government announced a revamped Gold Monetisation Scheme, as per which the minimum deposit amount has been reduced to just 10 gm from 30 gm, all public sector banks have been roped in, and jewellers have been invited to participate in the scheme in a big way. The move is set to unlock an estimated 22,000 tonnes of idle gold lying with Indian households.

As per the Finance Ministry announcement, at least one third of the public sector bank branches in all towns will have to provide the revamped Gold Deposit Scheme (R-GDS) on demand, with designated officers overseeing the proceedings.

The notification said, “All public sector banks shall be advised toparticipate in the GMS, and provide the Revamped Gold Deposit Scheme on demand. At least one-third branches of public sector banks in all towns shall be designated as GMS service branches. Regular training on GMS will be provided to at least two staffers of the PSB branches. Private banks will also be requested to participate in the scheme.”

Notification highlights

The other highlights of the notification are:

MTGD, LTGD Deposit Certificates to be dematerialised

In the first stage, the issue of Medium-Term Gold Deposit(MTGD) and Long-Term Gold Deposit (LTGD)certificates by banks will be moved to a secure digital platform, to be developed by the State Bank of India on behalf of the Government. Banks will also dematerialise Short-Term Gold Deposit (STGD) certificates issued by them.

Thereafter, a regulated securities depository will be designated by the SBI to hold R-GDS certificates in a digital demat form. Accordingly, these certificates will be made tradable and transferable, like Sovereign Gold Bonds (SGBs), to make R-GDS an investor-friendly product. Besides, banks will be permitted to provide loans against MTGD and LTGD certificates.

Jewellers to be engaged as CPTCs

Jewellers will be encouraged to set up BIS-approved Collection and Purity Testing Centres (CPTCs). As collection and purity assaying centres, they will be paid in line with current guidelines for CPTCs.

Robust digital platform to be developed

The Finance Ministry notification also proposes to create a web portal and mobile app, covering all GMS processes, including deposit and redemption processes. The ownership of the platform will rest with the SBI.

Interbank lending of IGDS/LBMA bullion to be permitted

Interbank lending of Indian Good Delivery Standards (IGDS)/London Bullion Market Association (LBMA) standard bullion will be allowed in order to meet the obligations of the Gold Metal Loan (GML), which will reduce the need to lease gold from international markets.

Repayment of GML in lots of 1 kg will be allowed by all participating banks. GML will be made available to all jewellers with a valid working capital credit limit.

Impact of announcement

Industry players say that mobilising the idle gold lying with Indian households will help the country reduce dependence on import of gold and address the issue of current account deficit as well. The announcement is expected to revive the GMS, that has mostly remained a non-starter since its introduction in November 2015.

The Gems and Jewellery Export Promotion Council (GJEPC), which has been at the forefront for demanding changes to the GDS, has expressed its happiness with the Finance Ministry announcement, and has said it hopes the gold and jewellery sector will become an integral part of the $ 5 trillion-economy.

Here’s how leading industry players have reacted to the announcement.

Colin Shah, Chairman, GJEPC

Our deepest gratitude to Smt. Nirmala Sitharaman, Hon’ble Minister of Finance, for accepting and incorporating all the recommendations of the GJEPC in the amended Gold Monetisation Scheme (GMS). The revamped GMS is a win-win for all as it will unlock tonnes of unused gold in India. This will not only benefit the consumer, retailer and banks, but the nation as well. It will also drastically reduce the import of gold, and will help the country cut down the Current Account Deficit.

Dr Saurabh Gadgil, Chairman and Managing Director, PNG Jewellers, Pune

As per the new scheme, the minimum deposit amount has come down to 10 gm from 30 gm. This will ensure larger participation of people. Hopefully, it will lead to India becoming a dominant player in price fixing.However, ultimately, only time will tell if the scheme will succeed. Indians have strong emotions towards their jewellery, and they want to keep it close to themselves. But people will always need to raise funds, or expand their business, or repay old loans, and monetizing the household gold is an option to do so. One must also consider, however, if people would want to part with their family heirlooms at the low interest rate being offered currently. The good side is that as more and more gold is made available in the country, imports will go down.  If imports go down, smuggling will reduce.

Parag Chheda, Managing Director, Chheda Jewellers, Mumbai

I don’t think the changes announced in the GMS will have any impact on the gold loan business. The scheme does not seem to benefit consumers.  It involves a lock-in period of 1-3 years and 3-7 years. The rate of interest offered is only 2.25% and 2.5% respectively. The gold price index moves more than 15%-18 % a year. Hence, I don’t think it will interest customers at all. Gold is very precious and women would not like to part with it. At 2.5%, why would they deposit it? If the return isn’t good, why would anyone invest? Moreover, we are the only country in the world that is paying high levels of duty to import gold. Unless prices are at par with international rates, there will not be a reduction in imports, or smuggling of gold. The scheme doesn’t have enough meat to succeed on a large scale in its current state.

Sunil Nayak, CEO, Reliance Jewels, Mumbai

When the scheme was first launched in 2015, with a minimum quantum of 30gm, we didn’t see much acceptance of it, either by investors or depositors. Bringing the deposit amount down to 10 gmshould go a long way in attracting people towards it. We also need to keep in mind the fact that gold has appreciated significantly since then. But ultimately, it will need to be promoted strongly in order for people to take notice of it. If the new GMS scheme is accepted by investors on a large scale, it will certainly lower the quantum of gold imported into the country. Moreover, GoI will be able to mobilise this gold back into production through jewellery retailers and manufacturers at a lower interest rate of 3%-3.5%.

Anil Talwar, Managing Partner, Talwarsons Jewellers, Chandigarh

The government has been trying since 2015 to convince people to give their gold under the monetisation scheme, but has not succeeded. People are afraid the income tax authorities might question them about the origin of their household gold. A lot needs to be done to convince customers to monetise their gold. The income tax implications should be fully explained by the government.  What I feel is that the government needs to work on the gold held by religious entities in India. This is idle gold in the real sense. They need to convince these entities to come forward and offer their gold deposits under the monetisation scheme. If the revamped gold monetisation scheme is implemented properly, it will help the government in many ways. The deficit faced by the government could be taken care of in a big way. Enough gold in the system would control smuggling as well. The government also needs to take a serious note of the trade deficit we have.

Binaisha Zaveri, Director, Tribhovandas Bhimji Zaveri, Mumbai

This is definitely a great initiative, and will result in unlocking gold stashed away in Indian households. The Government took inputs from the industry, and the revamped scheme is in line with our expectations. I am sure this will also help to reduce the smuggling of gold into India.

Vastupal Ranka, Director, Ranka Jewellers, Pune

The biggest problem that the Gold Deposit Scheme (GDS) faced was lack of publicity. There was no awareness among people about the benefits of such a scheme. Now, the government has taken a good step by involving jewellers, who will help in marketing GDS. Banks will approach jewellers for partnership, they will sign contracts, jewellers will get commissions and an evaluation fee. Moreover, all this will not only increase footfalls in retail outlets, jewellers will also gain more credibility. All in all, idle gold will be put to work. The revamped scheme will also help to control the Current Account Deficit, and gold imports will be reduced.It’s a win-win for everyone.

Ashish Pethe, Chairman, All India Gem and Jewellery Domestic Council (GJC)

The Government move to bring down the minimum requirement of gold deposit will help getsmaller customers in the GMS fold. This will increase the quantity of gold mobilised through the scheme. If the scheme takes off, it will reduce our dependence on gold imports, and will help the government improve the CAD situation. Banks will also benefit through expanded gold metal loans portfolios. Retailers will benefit by getting more customers. Customers will benefit by earning interest on the idle gold sitting in lockers. GJC had given a detailed representation to the Government regarding simplifying the GMS. We are happy that the Government has accepted most of our suggestions. One of our major suggestions was to involve jewellers as Purity Testing and Collection Centres. This has been accepted, and it will give the desired comfort to customers, as well as provide that last mile connectivity for the scheme. However, more clarity is required about the threshold quantity of gold deposit upto which no questions will be asked of customers. This is important since most household gold is passed down from generations, and people may not have proof of purchase.

Courtesy: Retail Jeweller India News Service