Savings Account Monetization Scheme

India is one of the most prominent markets for any gold business since Indians are the largest consumers of gold in the world. Therefore, the Indian government drafted the Gold Monetization Scheme which is a special savings account.

Objective

• To draw up the gold owned by individual family units and establishments in India.
• To boost the jewelry and gemology businesses in the country, by making gold available as a natural resource on a mortgage from various financial institutions.
• To satisfy the domestic demand and decrease our dependence on imported gold.

PM’s 3 Gold Schemes

Gold Monetization Scheme

• It can fetch up to 2.5% interest on idle household gold.
• Get up to 2.25% and 2.20% rates on Medium and Long-Term Government Deposit or MLTGD respectively.
• 5-7 years of tenure for Medium-Term Government Deposit and 12-15 years tenure for Long-Term Government Deposit.
• The chosen banks will recognize the gold deposited under MLTGD on behalf of the government.
• The interest rates on gold deposits will accumulate from the day the gold gets converted to tradable ingots after refinement at any Purity Testing Centre or the specific bank branch.

Sovereign Gold Bond

• Access to Sovereign gold bonds that are priced per gram by RBI.
• Bonds are issued in denominations of 5g, 10g, 50g and 100g of gold.
• The Bonds are to be traded through banks and selected post offices.
• Bonds are to be utilized as loan security. However, the loan-to-value ratio is to be made equal to normal gold loan as directed by RBI periodically.
• KYC standards are to remain the same as the KYC standard for buying gold (Documents needed: Address proof and ID proof documents such as Voter ID, Aadhaar Card, Passport, PAN card or TAN Card, Driving License).
• The interest on Gold Bonds is to be taxable, under the provision of the Income Tax Act, 1961 (43 of 1961).
• The Bonds are to be qualified for Statutory Liquidity Ratio (SLR).

Gold Coins

• Gold coins of 5g and 10g or a 20g bar are available.
• Approximately 15,000 coins of 5g, 20,000 coins of 10g and 3750 gold ingots are to be made obtainable through MMTC offices.

Formulation of the Gold Monetization Scheme

Step 1: Banks, hallmark centers, jewelers’ groups prepared the Proposal draft.

Step 2: The same was submitted to RBI and related government departments.

Step 3: It got approved.

Lucrative Nature of the Gold Monetization Scheme

The Gold Monetization Scheme involves an enormous system of preparation for enabling safe and simple supervision of gold. This is exactly the reason why it was not introduced nationwide in the initial phase. The stakeholders are confident that the infrastructure for examining and filtering of gold is set to make an enormous progression in time.

The Gold Monetization Process

1. Purity Substantiation and Gold Deposit

Centers to Test Gold Purity: There are currently 350 Hallmarking Hubs across the nation that are certified by the BIS or the Bureau of Indian Standards. These centers are ‘Purity Testing Centres’ for the 'Gold Monetization Scheme' as they are highly resourced to test gold for purity.

Primary Test: in these Purity Test Centers, an initial XRF engine-test is done to determine the approximate quantity of pure and unadulterated gold in the given gold. If the client agrees, he or she should duly fill a Bank or KYC form of consent to let the center melt the gold; else they can take their gold back.

2. Fire Assay Exam

Once the customer gives consent, the ornament is then cleaned of its grime and studs. These studs are returned to the client immediately. The total mass of the gold is measured only after this is done and the customer is duly informed. Then the melting process is initiated through a fire assay to determine its purity. It takes a few hours and clients are allowed to watch the entire procedure from the viewing galleries.

3. Depositing Gold

Once the Fire Assay Test is completed, the customer is informed of the outcome. The client decides whether to take it or reject it. The client can also take back the molten gold in the shape of ingots if they pay a minimal fee to the center for the procedure. If the client wishes to deposit the gold, then the bank will pay these charges. Once the gold is deposited in the bank, the bank will issue a certificate mentioning the weight and the purity of the deposited gold. The client has to bring a minimum of 30 grams of gold. This benchmark is set very low in order to entice small depositors.

Starting a Gold Savings

Step 1: Obtain a purity certificate of your gold from any Centre.

Step 2: Submit it to a preferred bank.

Step 3: The bank will start a ‘Gold Savings Account’ for you.

Step 4: The certified gold can now be transferred directly into the account.

Disbursal of Interest on Gold Savings Account

The customer’s preferred bank promises to pay an interest as per the current market rates and the norms of the bank. This interest can be paid after one or two months after the creation of the account. The principal payable amount, as well as the interest, will be measured in gold. For example, if a client puts 100 grams of gold at 1% interest, then he will get 101grams at the end of the tenure.

Reclamation: The client gets a choice of recovering the deposit either in terms of money or in gold. This must be mentioned in the beginning.

Account Term: The term of the deposit is at least a year and can be prolonged to multiples of a year. Just like FDs, one may break the lock-in period by paying a penalty charge

Tax Exemption: This scheme exempts the clients from Income Tax, Wealth tax as well as Capital Gains Tax payment.

Transferring Gold to the Refiners:

Refineries: India has 32 refineries, few among which boasts of NABL recognized laboratories.

Transference of gold: After the purity of the gold is tested and determined, it is directly sent to the refiners from the center. The gold is stored in their warehouses or the bank lockers.

Disbursement: The bank pays the refiner a fee for the services that is previously agreed upon jointly.

The deposited gold is then utilized in Gold Savings Account

Cash Reserve Ratio/ Statutory Liquid Ratio: The RBI is considering to permit the banks to show the gold deposits accumulated this way as a part of their CRR or SLR requirements.

Overseas Currency: Selling the gold helps the bank to draw in foreign money.  The funds thus made are then used to lend out to potential business people.

Coins: The gold is converted to loose dimes for more sale to their clients.

Exchanges: The banks are allowed to purchase and sell on domestic commodity exchanges. Mobilized gold can be delivered here.

Loan: The banks can also mortgage the gold to jewelers and other businesses.

Conclusion

Although this scheme is very promising, the customers are not very happy with the process. The mostly feel that the interest offered is too less as compared to the rising value of gold. Additionally, gold is often of more sentimental value to Indian families than a mere yellow metal. Most of the ornaments are family-heirlooms that are conserved carefully with an emotional connection and people do not want them to be melted. The government can redress this concern to some extent if they start making invoices compulsory for ingots and coins but not for traditional ornaments. The government is open to more suggestions and hopes to make this scheme a success.