Glitter back for gold monetisation scheme; banks to open metal account

The government is considering yet another major shift in the gold monetisation scheme (GMS). After allowing charitable institutions and government entities to deposit gold under the GMS, the Department of Economic Affairs (DEA) has mooted a proposal whereby banks will open a metal account for customers when gold is deposited under the GMS, confirmed three persons familiar with the development.

According to the existing norms, banks open a deposit account and upon maturity of medium- and long-term GMS deposits, customers are returned cash in their bank account. If metal accounts are opened, upon maturity, customers will get back gold. This is more suited for temples holding 4,000 tonnes of gold, mostly in the form of jewellery.

While temple trusts have evinced an interest in the scheme to deposit gold lying with them, the gold they hold is on behalf of the deity and their norms don’t allow them to sell gold. If gold deposited upon maturity is returned in a cash equivalent, many temples would stay away from depositing gold. The new proposal of a metal account addresses this concern and would appeal to several institutions, including customers.

Another proposal is to allow banks accepting gold directly from customers to pursue easier ways to mobilise gold under the GMS. If implemented, this could significantly change the fortunes of the GMS and customers dealing with banks, whilst also creating policy challenges, even though the idea behind this is to mobilise idle gold lying with households.

As of now, the scheme mandates customers to give gold to collection and hallmarking centres that melt and give certificates of pure gold content, based on which banks open deposit accounts. The finance ministry also plans to allow banks to accept gold directly from customers.

There were a series of finance ministry meetings held in Delhi between September and November on the GMS with gold refineries, hallmarking centres, jewellers, banks, and the Bureau of Indian Standards. Some stakeholders seem to have proposed an easier way to mobilise gold under the GMS. The DEA has proposed allowing banks to accept gold directly from customers - be it from gold refiners, jewellers, digital gold, or even yellow metal lying with online bullion stockists.  

The move has found criticism. Said a market functionary on condition of anonymity, “If customers are permitted to deposit gold seamlessly, what may get deposited may be fresh imported bullion purchased from jewellery shops or online portals or digital gold. If gold comes from jewellers, even the purity may be questionable and the sole purpose of the GMS is to mobilise idle gold for recirculation, so as to cut down on gold imports and the current account deposit.”

According to him, the existing procedure of giving gold to collection or hallmarking centres is an efficient one. The government has already given licence to 55 hallmarking centres, 15 bullion refineries, three logistic agencies, and around 15 banks to operate the GMS. Banks had asked for three months’ time to be ready for that and possibly from February, banks are expected to put in place a mechanism for popularising the GMS.

  • If banks are allowed to open metal accounts, temples could deposit huge quantities
  • Govt would guarantee interest payment & maturity proceeds
  • It will have to part with physical gold instead of cash, which makes procedure difficult
  • Banks accepting gold directly  will kill the purpose of cutting imports
  • Even imported gold may be routed to GMS to earn interest
  • Govt has also licensed 55 hallmarking centres, 15 refineries, 3 logistics firms to participate
  • Around 15 banks are said to be ready to popularise the gold scheme