GOLD MONETIZATION SCHEME

GOLD

Gold is the most useful metal in jewelry. Rings, bracelets,

necklaces, earrings, and many other jewelry items are fashioned

from Gold, and Gold is the main precious metal used for jewelry

settings. Gold masks and ornaments were used by many ancient

civilizations, and Gold has also been used in coinage since the

earliest of days. Pure Gold lacks resistance to pressure and

easily bends. For this reason, Gold jewelry is

always alloyed with other metals to increase its toughness and

durability. The purity of Gold depends on the percentage of

alloyed metal, and this number is measured in karats. The karat

measurement determines the percentage of gold to other metals

on a scale of 1 to 24, with 24 karats being pure gold. Common

karat weights are 22 kt (91.67% gold), 18 kt (75% gold), 14 kt

(58.33% gold), and 10 kt (41.67% gold). Pure 24 kt Gold is

never used in jewelry as it too flexible and will be bent and

misshaped even by minor touches.

Several different metallic elements are alloyed with Gold,

and some are used specifically to produce a certain color or tone

in the Gold. The main metals alloyed with Gold are copper,

silver, palladium, nickel, zinc, and iron. White Gold, which has

become very popular in jewelry, is mainly alloyed with nickel

and zinc, and occasionally palladium. White Gold resembles the

color of Silver, but it is far more resistant to corrosion and will

not tarnish like Silver. Rose Gold, which has a slightly reddish

tone, is alloyed mostly with copper. Green gold, which appears

greenish-yellow, is alloyed with silver, and Blue Gold, which is

gold with a whitish-blue tone, is alloyed with iron.

India's Golden Tradition

Gold is part and parcel of India's culture and tradition. As

money, jewelry, status symbol and investment, gold has played a

crucial role in the lives of Indians for centuries. A family's

wealth was determined on the quantity of gold and land they

had. Gold is considered Lakshmi (the Hindu goddess of wealth)

and a symbol of prosperity.

Traditionally and, as a religious practice, an Indian woman

wears ornaments throughout her life. Gold is her metal of choice

for jewelry. Usually, from childhood till the end of her life, the

Indian woman will adorn herself with various gold ornaments,

depending on her wealth and status. The trend in recent times is

more toward platinum and white gold among the urban elite, but

for the middle- and lower-class families, jewelry means only

gold.

Nothing can replace the status and importance of gold in the

Indian society. In south India, the first food a newborn consumes

will contain gold. According to tradition, the elder family

member makes a paste of a local herb and a miniscule quantity

of gold and feed the baby its first morsel. This is believed to

bring wealth and prosperity to the baby in his/her life.

Gold is also part of the religious rituals at homes and temples. In

several states, the yellow metal is worshipped as a symbol of

Lakshmi and wealth.

No wedding is complete without gold, and gold ornaments are

exchanged during wedding ceremonies, no matter which religion

the bride and groom may belong to. Mangalsutra - a neck chain

with a mandatory gold pendent - is presented by the groom to

the bride during the Hindu wedding ceremony. Apart from this,

Indian brides are bedecked in gold at their weddings. Though

dowry is banned in India, it still exists in practice and gold is the

most common form of dowry given to daughters at the time of

their wedding.

The Akshaya Trithiya is an auspicious day in the Hindu calendar

to buy gold. Devotees celebrate this day (usually in April) by

buying gold. In recent years, this festival has become highly

commercialized as the jewelers have started promoting the sales

with discounts. Gold ornaments worth millions of rupees are

purchased across the country on this day.

HISTORY

Gold monetisation was first rolled out by then finance minister Morarji

Desai in 1962. Gold bonds, as they were called, were opened for

subscription between November 12, 1962 and February 28, 1963 for a

15-year tenure. 16 tonnes of gold worth Rs 8.61 crores was mobilised.

Morarji Desai admitted it "did not come up to expectations". In 1965,

another gold monetisation scheme (called the gold bond scheme again)

was launched offering tax immunity for people who hadn't declared their

gold holdings earlier.

But that optimism proved misplaced and the scheme too failed to

mobilise a significant amount of gold. The third attempt at gold

monetisation - the National Defence Gold Bonds scheme of 1980 - was

again a relative failure, managing to raise only 13 tonnes. In 1993, the

Narasimha Rao government with Manmohan Singh as Finance Minister

had another go at gold monetisation. The gold bond scheme was

launched by issuing the Gold Bonds (Immunities and Exemptions)

Ordinance in March 1993. The scheme, which asked no questions about

the origins of the gold, ran for three months from March 15, 1993.

Investors, who wished to avail the scheme, were expected to deposit a

minimum of 500 grams of gold to be melted later. There was no

maximum limit for subscription.

In 1999, the government once again launched a gold deposit scheme,

this time open-ended, which depositors could avail by depositing a

minimum of 500 grams of gold like in 1993. There was again no

maximum limit. There was, however, no amnesty clause as the

government had furnished an undertaking in 1997 to the Supreme Court

that they would offer no such amnesty in the future. The scheme has

managed to collect "15 tonnes of gold to date

REASON FOR FAILURE

1. Few banks offer the Gold Deposit Scheme (GDS).

2. Those banks that do have GDS, set the minimum deposit amount at

anywhere between 500g to 1kg of gold, making the Scheme more

suitable for temples than individuals.

3. The product is not widely marketed.

4. Banks cannot easily assay the gold to decipher its caratage and purity.

As interest on the GDS is typically paid in grams of gold, banks cannot

offer the product unless they can quickly ascertain its quality.

5. Banks do not accept jewellery under the GDS, assuming that

customers will not want to deposit jewellery and receive plain gold when

their investment matures.

Most Indians not being keen on melting family heirlooms and gold

jewellery they hold dear has also been cited by experts as the reason for

the failure of these schemes.

GOLD MONETIZATION SCHEME

The Gold monetization scheme is a government of India sponsored

scheme to put your idle gold into the work. There is 20,000-ton

gold, lying in the households of India. The government wants to

recycle this gold so that import of the gold can be reduced.

In the Gold Monetization Scheme, you put your gold with the

bank. The value of the gold rises along with the market prices.

Besides this, you also get the interest on your gold. The interest

is also in the form of gold. At the time of maturity, your gold

itself gets heavier because of regular gold interest. You can

redeem your gold in the form of cash or gold. The gold kept

with the bank is used for the gold lending.

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).

Objective

The objectives of the Gold Monetization scheme are:

ii. 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.

iii. To be able to reduce reliance on import of gold over time to

meet the domestic demand.

FEATURES OF GOLD MONETIZATION SCHEME

Any form of gold can be used for this scheme. It may be bullion

or jewelry.

Minimum deposit of pure gold should be 30 Gold

MonetizationScheme

The interest would be given in gold grams.

Like a fixed deposit, the breaking of lock-in period will be

allowed.

There would be a penalty on premature redemption including

part withdrawal.

Minimum tenure of Gold Monetization Scheme is one year.

Except short term deposit, the redemption of Gold

MonetizationScheme would be in rupees.

For short term deposit, the mode of redemption (gold or cash)

should be fixed in the beginning. The change of redemption

mode in between is possible at the discretion of the bank.

Redemption of fractional quantity (for which a standard gold

bar/coin is not available) would be paid in cash.

The rate for the valuation of gold, at the time of the redemption,

would be the prevailing market rate.

STRUCTURE OF GOLD MONETIZATION SCHEME

I. 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 (List of the number of centres in each

states is at Annexure-II). 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 fee1to 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).

II. Opening of Gold Savings Account with the banks.

• 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 lock-

in 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.

III. 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.

IV. Utilization of Deposited Gold

• CRR/SLR: To incentivize banks, it is proposed that they may be

permitted to deposit the mobilized gold as part of their CRR/SLR

requirements with RBI. This aspect is still under examination.

• Foreign Currency: Banks may sell the gold to generate foreign

currency. The foreign currency thus generated can then be used for

onward lending to exporters / importers.

• Coin s : Bank may convert mobilized gold into coins for onward sale to

their customers

• Exchanges : Banks to buy and sell on domestic commodity exchanges,

where mobilized gold can be delivered.

• Lending to jewellers: For lending to jewellers

V. Lending the Gold to the Jewellers

• Gold Loan Account:

The jewellers, on the basis of the terms and conditions of the banks, will

get a Gold Loan Account opened at the bank.

• Delivery of gold to jewellers:

When a gold loan is sanctioned, the jewellers will receive physical

delivery of gold from the refiners. The banks will in turn make the

requisite entry in the jewellers’ Gold Loan Account.

• Interest received by banks:

The interest rate charged by the banks will have to cover the following:

Interest rate paid to the depositors of gold

Fee paid to the refiners and Purity Verification Centres.

Profit margin of the banks

The banks can directly get gold from the international market on a

consignment basis and lend it to the jewellers. If this route is more

lucrative, then the entire purpose will get defeated. Thus, this aspect will

also have to be kept in mind, while deciding the interest rate.

VI. MoU between Banks, Refiners and Purity Testing Centres

• The banks will enter into a tripartite MoU with refiners and purity

testing centres, that are selected by them to be their partners in the

scheme.

• The MoU will clearly lay down the details regarding payment of fee,

services to be provided, standards of service and the details of the

arrangements between the banks, refiners and purity testing centres.

TENURE

SHORT TERM GOLD MONETIZATION SCHEME

In the short term Gold Monetization Scheme, you deposit the gold for 1-

3 years. The interest rate of this type of scheme is decided by the bank.

You can get back the deposit in the form of gold or rupee.  The deposit

period can be extended multiple times in the blocks of one year.

MEDIUM TERM GOLD MONETIZATION SCHEME

Medium term Gold Monetization Scheme is for the deposit of 5-7 years.

The interest rate of such deposit is fixed by the government in

consultation with the Reserve Bank of India. The redemption can be

only in the cash.

LONG TERM GOLD MONETIZATION SCHEME

This scheme is for the deposit of 12-15 years. The interest rate is fixed

by the government in consultation with the Reserve Bank of India. The

redemption would be in the cash only

Minimum/ maximum deposit: 

30 grams of 995 finenes in raw gold (bars, coins, jewellery, exclusind

stones and other metals). There is no maximum limit under the scheme.

Benefits of Gold Monetization Scheme

Benefit To Customers

1. The gold grows itself in this scheme. The weight of gold

remain same forever if you keep is in the house. But the GMS

increases the weight of the gold according to the given

interest rate.

2. You need not to worry about the security of the gold. It can’t

be stolen.

3. You can save the expense of locker. Lockers are not cheap.

4. You will get the true value of your gold.

5. Getting cash in place of gold is very easy.

Tax Benefit

There is no tax at all. The investment, interest and maturity is

tax-free. There is no capital gains tax on the gold interest.

There is wealth tax as well.

Benefit To Government

It will reduce the country’s reliance on the import of gold to

meet domestic demand.

Gold Monetization Scheme would benefit the Indian gems and

jewelry sector which is a major contributor to India’s exports.

The mobilized gold will also supplement RBI’s gold reserves

and will help in reducing the government’s borrowing cost

Disadvantages of Gold Monetization Scheme

The GMS has some disadvantages.

1. You have to part the gold for some years. You can’t see it

physically till the maturity.

2. The gold jewelry will lose its form. The gold is melted in the

Gold Monetization Scheme.

3. The impurities can reduce the weight of your gold.

4. You have to go through the tedious process of Gold

Monetization Scheme.

Recent article on reaction of Indian temple about

gold monetization schemes

As the government seeks to monetise gold worth an estimated USD one trillion lying idle, all eyes are on their biggest repositories — the temples — but many of them fear that ‘melting’ of the ornaments donated by devotees may hurt religious sentiments.Officials at a number of rich and famous temples across the country said they may not be able to immediately participate in the scheme, while a few others said the scheme was worth exploring but a final decision was yet to be taken.For some temples, including Sree Padmanabhaswamy Temple in Kerala and the Shirdi Sai Baba temple in Maharashtra, the ongoing court cases are coming in the way.The interest remains lukewarm among major temples in Kerala, Karnataka, Telangana and Rajasthan among other states, while a few in Andhra Pradesh, West Bengal and Gujarat have shown initial interest.However, most of them are concerned about issues like loss of value in the melting process and the religious sentiments of the devotees who donate gold ornaments in the name of the deities of the respective temples.The Gold Monetisation Scheme, an ambitious initiative launched by Prime Minister Narendra Modi last month, aims to bring an estimated

22,000 tonnes of gold lying idle with households, religious institutions and others into the financial system in return for a regular interest payout and the market-linked appreciation value.The gold can be deposited even in the jewellery form, but it gets melted and the value is determined after testing its purity. The depositor can choose an option to get back the gold at a later date in the equivalent of ‘995 fineness gold or Indian rupees’ as they desire, but not in the same form.Among various temples in Gujarat, the famous Ambaji temple has ruled out depositing its gold for the scheme at present, while Somnath temple has prepared a proposal in this regard and a final decision would be taken by its trustees.Dwarkadhish temple in Devbhumi Dwarka is yet to take a call, but the chairman of the temple trust committee H K Patel said the scheme was worth giving a thought.The famous Siddhivinayak Temple in Mumbai also appears interested in exploring the scheme as it is looking at options to utilise its 160 kg of gold reserves, out of which about 10 kg is already deposited with a bank.The high-level Investment Committee of Tirumala Tirupati Devasthanams (TTD), which manages the world’s richest Hindu temple of Sri Venkateswara Swamy, will also meet soon to discuss the issue of depositing its gold under this scheme.Kanakadurgamma Temple in Vijayawada, the second richest temple in Andhra Pradesh, however has no plans to participate in this scheme, while neighbouring Telangana government has not taken any decision as yet on participating in the Scheme.The Devaswom Boards controlling most of the temples in Kerala are showing mostly lukewarm response to the central government’s scheme, except for the Guruvayour Devaswom that manages the famous Sree Krishna Temple at Guruvaoyur.

State Minister for Devaswom V S Sivakumar said the Devaswom boards are autonomous bodies and the government cannot give any direction on matters like these.“It is for the respective Devaswom Boards to take a decision,” he said.In case of the Travancore and Cochin devaswom boards, any decision on such matters would need to be ratified by the Kerala High Court, which is the audit and expenditure controller of these Boards.Besides, the gold in custody of most of these temples are in the form of small jewellery items and the Devaswom boards fear that they would have to bear a loss as the jewellery would be melted after being deposited under the scheme.Officials said the boards also fear that any loss of weight after melting would unnecessarily invite allegations of irregularities and corruption.“So, boards have not shown much interest in the scheme,” a senior official in the state government said.Travancore Devaswom Board (TDB) President Prayar Gopalakrishnan, who took charge of the office last month, said that he was yet to study the details of the scheme.The famous Lord Ayyappa Temple at Sabarimala, visited by millions every year, is among the several shrines under TDB.Cochin Devaswom Board (CDB) member E A Rajan said it does not have surplus gold that could be deposited under the scheme.“Gold in the temples are used to attire the idols. They are in jewellery form,” he said.The famous Sree Padmanabhaswamy Temple’s Executive Officer K N Sateesh said all temple affairs were under the scrutiny of the Supreme Court.“We cannot say anything on these matters now,” he said while adding that everything will depend on the court decision.Guruvayour Devaswom, which manages the famous and one of the riches temples Sree Krishna shrine at Guruvayour, said there was no

problem in participating in the scheme but they did not have any excess gold to deposit at present.“There is no problem for us to deposit in the scheme,” Mallessery Parameswaran Namboothirpad, Member (Administrative) of the Managing Committee, said.Nearly 500 kg gold was already deposited under a scheme with State Bank of India, he said, while adding that the temple receives an average of three kg of gold every month.“We are ready to deposit in the scheme. But at present we do not have any surplus,” he added.Looking to give a push to the scheme, the All India Gems and Jewellery Trade Federation is working on suggestions to be submitted to the central government.“We have met the finance ministry officials and will soon submit our suggestions in which we will ask the government to introduce a simple and practical process for jewellers to act as collection centers.“The jewellers as of now are facing hardship to meet the conditions set by the government,” former chairman of All India Gems and Jewellery Trade Federation Bachhraj Bamalwa said.“Only targeting temples will not help much in generating the flow of gold to the scheme. Retail public participation is needed and for that the process has to be made flexible and more practical,” he said.State-run MMTC’s Chairman and Managing Director Ved Prakash said discussions are continuing with the banks, verification centres and refiners.“Meanwhile, institutional gold has started coming like Tirupati has indicated 1.5 tonne, Shirdi 500 kgs. We have started dialogue with smaller temples of Himachal Pradesh and Haryana and gradually to temple trusts of other states,” he added.

Among temples in West Bengal, Dakshineswar Kali Temple’s trustee and secretary Kushal Chowdhury welcomed the scheme saying it is a very good idea.“We are interested in participating in it. What is the point of leaving the gold lying idle in our vaults? It is better if it is used for welfare of the nation,” he said without divulging quantity of gold the temple holds.However, the temple committee of Tarapith is yet to give any thought to the scheme, a senior official said. The Kalighat temple officials were not available for comments.In Karnataka, Muzrai Minister Manohar Tahsildar said the state government has not yet taken any decision as yet on the gold monetisation scheme floated by the central government as it is still weighing the pros and cons of it.“We have to take a decision on the scheme. We are weighing the pros and cons of implementing the scheme under which temples can deposit their gold with banks,” Muzrai said.The Religious and Charitable Endowments (Muzrai) Commissioner had earlier written to the Principal Secretary of Revenue explaining the advantages and disadvantages of implementing the scheme.Tahsildar, however, said any discussion was yet to take place on the letter as it has just been a month that he has taken charge as Muzrai minister.The letter raised concerns of hurting religious sentiments of the people in melting of gold for depositing with banks.It also raised security concerns in transporting these idols from temples to melting units and the high costs involved in doing so. However, it also explained the benefits.

Somnath Temple to invest in Gold Monetisation Scheme

AHMEDABAD: The Somnath Temple Trust is all set to become Gujarat's first temple to deposit its idle gold in the Gold Monetisation Scheme as its trustees including Prime Minister Narendra Modi have given their nod to invest the yellow metal reserves in the scheme.

The trust has around 35 kg of gold and will deposit the gold which is not in day-to-day use of the temple.

The decision was taken during the recently held meeting of trustees at Modi's residence in Delhi on January 12, said the trust secretary P K Lahiri, who is also one of the trustees of the Somnath Temple, situated in the Gir-Somnath district.

"During the meeting, all the trustees have agreed to the proposal of depositing the gold, which is not in day-to-day use of the temple, in the Gold Monetisation Scheme," said Lahiri.

According to him, the trust is having around 35 kg of gold, which is either in the form of pure gold or ornaments. Now, the management will segregate the pure gold from the whole lot to finalise the quantum of gold which can be deposited.

Balaji temple will benefit a lot from gold monetization

Lord Venkateswara Swamy, popularly known as Balaji, will be the biggest beneficiary of the gold monetisation scheme announced by the Narendra Modi government recently. The Tirumala Tirupati Devasthanam (TTD), which runs the Balaji temple atop the Tirumala Hills in Tirupati, is mulling depositing around eight tonnes of gold under the scheme.

Already, the TTD has deposited six tonnes of gold and jewellery in three public sector banks — SBI, SBH and Indian Bank at a nominal interest rate of less than 1% per annum. However, after the new scheme was unveiled, the interest rate is going to be double at around 2%. The TTD will wait to see which bank offers the highest rate for its gold.