Gold lying in the locker appreciates in value if gold price goes up but it doesn't pay you a regular interest or dividend. On the contrary, you incur carrying costs on it (bank locker charges). The monetisation scheme will allow you to earn some regular interest on your gold and save you carrying costs as well. It is a gold savings account which will earn interest for the gold that you deposit in it. Your gold can be deposited in any physical form - jewellery, coins or bars. This gold will then earn interest based on gold weight and also the appreciation of the metal value. You get back your gold in the equivalent of 995 fineness gold or Indian rupees as you desire (the option to be exercised at the time of deposit).
The objectives of the Gold Monetization scheme are:
- To mobilize the gold held by households and institutions in the country.
- To provide a fillip to the gems and jewellery sector in the country by making gold available as raw material on loan from the banks.
- To be able to reduce reliance on import of gold over time to meet the domestic demand.
The scheme requires a vast set-up of infrastructure for facilitating easy and secure handling of gold. For this reason, it may be possible to launch it initially only in selected cities. Over time, as the infrastructure for assaying and refining of gold develops, the scheme can be extended to other cities.
BENEFITS ON OPENING AN ACCOUNT
There are many positives to depositing under the Gold Monetisation scheme:
- The gold monetisation scheme earns interest for your gold jewellery lying in your locker. Broken jewellery or jewellery that you don't want to wear can earn interest for you in gold.
- Coins and bars can earn interest apart from the appreciation of value.
- Your gold will be securely maintained by the bank.
- Redemption is possible in physical gold or rupees hence giving your gold purchase further earning opportunity.
- Earnings are exempt from capital gains tax, wealth tax and income tax. There will be no capital gains tax on the appreciation in the value of gold deposited, or on the interest you make from it.
PURITY VERIFICATION AND DEPOSIT OF GOLD
Purity Testing Centres: There are at present 350 Hallmarking Centres that are Bureau of Indian Standards (BIS) certified spread across various parts of the country. These centres may not necessarily be jewellers. They are engaged in certifying the purity of the gold that the jewellers manufacture on a daily basis and for which they charge a fee from the jewellers. These Hallmarking Centres will act as 'Purity Testing Centres' for the GMS as they are well equipped to conduct a test of purity of the jewellery in a short span of time.
Preliminary Test:In a Purity Testing Centre, a preliminary XRF machine-test will be conducted to tell the customer the approximate amount of pure gold. If the customer agrees, he will have to fill-up a Bank/KYC form and give his consent for melting the gold. If the customer does not agree to the XRF machine test, he can take his jewellery back at this stage. The time spent by the customer will be about 45 minutes in the centre up till this stage.
Fire Assay Test: After receiving the customer's consent for melting the gold for conducting a further test of purity, at the same collection centre, the gold ornament will then be cleaned of its dirt, studs, meena etc. The studs will be handed-over to the customer there itself. Net weight of the jewellery will be taken after such removals and told to the customer. Then, right in front of the customer the jewellery will be melted and through a fire assay, its purity will be ascertained. These centres have viewing galleries from where the customer can see the entire process. The time taken is expected not to exceed 3-4 hours.
Deposit of Gold: When the results of the fire assay are told to the customer, he has a choice of either refusing to accept, in which case he can take back the melted gold in the form of gold bars, after paying a nominal fee to that centre; or he may agree to deposit his gold (in which case the fee will be paid by the bank). If the customer agrees to deposit the gold, then he will be given a certificate by the collection centre certifying the amount and purity of the deposited gold.
Conditions: 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. Gold can be in any form (bullion or jewellery).
OPENING OF GOLD SAVINGS ACCOUNT WITH THE BANK
Gold Savings Account: When the customer produces the certificate of gold deposited at the Purity Testing Centre, the bank will in turn open a Gold Savings Account' for the customer and credit the 'quantity' of gold into the customer’s account. Simultaneously, the Purity Verification Centre will also inform the bank about the deposit made.
Interest payment by banks: The bank will commit to paying an interest to the customer which will be payable after 30/60 days of opening of the Gold Savings Account. The amount of interest rate to be given is proposed to be left to the banks to decide. 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.
Redemption: The customer will have the option of redemption either in cash or in gold, which will have to be exercised in the beginning itself (that is, at the time of making the deposit).
Tenure: The tenure of the deposit will be minimum 1 year and with a roll out in multiples of one year. Like a fixed deposit, breaking of lockin period will be allowed.
Tax Exemption: In the Gold Deposit Scheme (1999), the customers received exemption from Capital Gains Tax, Wealth tax and Income Tax. Similar tax exemptions are likely to be made available to the customers in the GMS after due examination.
TRANSFER OF GOLD TO THE REFINERS
Refineries: At present there are about 32 refineries in the country. The laboratories of some of these refineries are NABL accredited which means that the process that they adopt is certified. BIS has been asked by this Department to ascertain if it can conduct accreditation of the products being produced in these refineries also.
Transfer of gold to refineries: Purity Testing Centres will send the gold to the refiners. The refiners will keep the gold in their ware-houses, unless the banks prefer to hold it themselves.
Payment: For the services provided by the refiners, they will be paid a fee by the banks, as decided by them, mutually.
The deposited gold will be utilized in the following ways:
- under medium and long-term deposit - Auctioning, Replenishment of RBIs Gold Reserves, Coins and Lending to jewelers
- under short-term deposit – Coins and Lending to jewelers
- Tax Exemption: Tax exemptions, same as those available under GDS would be made available to customers, in the revamped GDS, as applicable.
- Gold Reserve Fund: 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.
- Revamped Gold Metal Loan Scheme
- Gold Metal Loan Account: A Gold Metal Loan Account, denominated in grams of gold, will be opened by the bank for jewelers. The gold mobilized through the revamped GDS, under the short-term option, will be provided to jewelers on loan, on the basis of the terms and conditions set-out by banks, under the guidance of RBI.
- Delivery of gold to jewelers: When a gold loan is sanctioned, the jewelers will receive physical delivery of gold from refiners. The banks will, in turn, make the requisite entry in the jewelers’ Gold Loan Account. Interest received by banks: The interest rate charged on the GML will be decided by banks, with guidance from the RBI.
MODIFICATIONS IN THE GOLD MONETISATION SCHEME
Government had launched the Gold Monetisation Scheme (GMS) on 5th November, 2015. Thereafter a number of suggestions have been received to make the scheme easier for the customers to participate. Accordingly, in consultation with Government, RBI has issued a Master Direction on GMS on 21st January, 2016, which amends the Master Direction dated 22nd October, 2015 earlier issued by RBI on GMS. The changes made in the scheme are given below:-
1) Premature redemption under Medium and Long Term Government Deposits (MLTGD) 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.
2) Fees to be paid to Banks for their services i.e. gold purity testing charges, refining, storage and transportation charges etc. on Medium and Long Term Gold Deposits. Effectively the banks would be getting a 2.5% commission for the scheme which will include the charges payable to the Collection and Purity Testing Centres/Refiners.
3) 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.
4) Bureau of Indian Standards (BIS) has modified the licensing condition for refiners already having National Accreditation Board for Testing and Calibration Laboratories (NABL) accreditation from the existing three years refining experience to one year refining experience. This is likely to increase the number of licensed refiners.
5) BIS has published an Expression of Interest (EOI) on its website inviting applications from the more than 13,000 licensed jewellers to act as a CPTC in the scheme, provided they have tie-up with BIS's licensed refiners.
6) The quantity of gold collected under the scheme will be expressed up to three decimals of a gram. This will give the consumer better value for the gold deposited.
7) Gold to be deposited with the CPTCs/Refineries can be of any purity. The CPTC/Refiner will test the gold and determine its purity which will be basis on which the deposit certificate will be issued.
8) Banks are free to hedge their positions in the case of short-term deposits.
9) Issues like the method of interest calculation and mechanism for taking loans against GMS deposits have also been clarified.