Gold has traditionally been an investment favourite among Indians, often considered a sign of status and financial stability. Be it marriage or a family occasion, precious metals are purchased and exchanged throughout the year in the second-largest consumer of gold in the world.
A report by the World Gold Council in 2019 had estimated Indians to have accumulated up to 25,000 tonnes of the precious metal in their households.
While some choose to store the accumulation in bank lockers, the RBI's Gold Monetisation Scheme allows people to place the accumulation at banks, just like an FD (fixed deposit), to earn interest on the same.
What is the Gold Monetization Scheme?
In 2015, the Reserve Bank of India (RBI) introduced the scheme by modifying the existing ‘Gold Deposit Scheme' (GDS) and ‘Gold Metal Loan Scheme (GML)' with an intention to mobilise gold held by households and institutions of the country, thereby reducing the country's reliance on imports for the metal.
While the scheme will replace the Gold Deposit Scheme, any existing outstanding deposits under the scheme will be allowed to run till maturity.
Features of Gold Monetization Scheme
- These accounts can be opened at all Scheduled Commercial Banks (excluding Rural Regional Banks) with zero balance at any time prior to tendering gold and after complying with KYC norms.
- The minimum deposit at any one time shall be 30 grams of raw gold (bars, coins, jewellery excluding stones and other metals). There is no maximum limit for deposit under the scheme.
- Gold deposited will be tested for quality at centres certified by the Bureau of Indian Standards (BIS) and notified by the government.
- The designated banks will credit the account with the amount of 995 fineness gold as indicated in the advice received from the certified centres after 30 days of receipt of gold at the centre, regardless of whether the depositor submits the receipt for issuance of the deposit certificate or not.
- The depositor shall produce the receipt showing the 995 fineness equivalent amount of gold issued by the certified centre (notified by the bank) to the designated bank branch, either in person or through post. On receiving this receipt, the designated bank shall issue the final deposit certificate on the same day or 30 days after the date of the tendering of gold at the certified centre, whichever is later.
- Redemption of principal and interest at maturity can either be made in cash (in Indian rupees) or in gold. However, in case of medium or long term deposits interest accrued and pre-mature redemption of principal will only be paid in cash.
- At maturity, the depositor will not receive gold in the same form that it was deposited as the gold deposited will be sold or lent by the bank or government to jewellers.
- Only Indian residents can participate in the scheme.
Types of deposits under the scheme
- These can be made at designated banks for 1 to 3 years, even for a broken period (like 1 year 3 months, 2 years 4 months, etc).
- These deposits will be treated as a bank's on-balance sheet liability.
- Banks are free to fix the interest rates on these deposits. The interest shall be credited in the deposit accounts on the respective due dates.
- Interest on deposits under the 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 is earlier.
- Minimum lock-in period is 1 year to make a pre-mature redemption.
Medium and long-term
- These deposits can also be made at designated banks, however, these will be accepted by the bank on behalf of the Central Government of India.
- These deposits will not be reflected in the balance sheet of the designated banks and will be liability of the government.
- The Medium Term Government Deposit (MTGD) can be made for 5-7 years and Long Term Government Deposit (LTGD) for 12-15 years or for such period as may be decided by the Central Government from time to time. These deposits are also permitted to be made for broken periods.
- Interest on medium-term deposits is 2.25% and on long term deposits, it is 2.50%.
- Interest payment on these deposits is annual and shall be paid on 31st March every year.
- Minimum lockin period for medium-term deposits is 3 years and on long term deposits, it is 5 years, for pre-mature redemption.
The article is purely informational and is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.