Govt plans to set up bullion bank to mobilise idle gold

Government and Reserve Bank of India (RBI) are seriously looking at buying idle gold from investors and routing that to jewellers to replace imports.To facilitate this, a proposal is under active consideration of the government of india and the RBI to set up a Bullion Bank or the Bullion Corporation of India (BCI) through which buying and selling of gold as well as accepting gold as a deposit and lending it to jewellers could be undertaken, said the sources familiar with the development.
Indians are estimated to be holding 20-25,000 tons of gold. Every year 800-900 tons of gold is added to this. MMTC is also said to have been sounded out to for execution of this plan.Different ways are under consideration in which gold buying program can be implemented. One is banks could be allowed to hold gold as a security under statutory liquidity ratio (SLR) and Basle norms permits banks to hold gold as a part of SLR.This will result in banks buying gold from public and selling securities they hold under SLR. For banks it will be liquidity neutral but for customers they will have money to spend or invest in other financial assets. According to a proposal banks can hold 2% of SLR requirements in form of gold.
Another option which could be more viable is to implement gold deposit scheme with depositor friendly features and market it more aggressively. Even at present the state bank of India has 10 tons of gold under the gold deposit scheme but the gold collected in initial stage only there and no more gold coming with it.Now the scheme could be implemented through a bullion bank or the BCI which will appoint agents to mobilise gold from the customers, the corporation will than melt it and convert in form of bars. Mobilisation of gold is proposed to be through agents which could be jewellers who enjoy trust of the gold holders or other authorities like bank branches.
The idea of setting up BCI was mooted by the RBI working group headed by the K U B Rao in last January. He suggested the BCI can be set up by the RBI with 51% equity and should have Rs 1,000 crore paid up equity, financial institutions and banks could be 49% equity holders.
Rao committee had also said t in its report that most of the gold is held by rural people who are not Income tax payers in general and hence mobilising gold from them may not have any fiscal pressures as they don’t need tax amnesty but such measures may be required if government wants to lure high net worth individuals.
Large part of black money in the system is said to be in form of gold and hence it will be difficult to mobilise that gold as holders would fear tax raids.In case of gold deposit schemes, a smaller quantity may also be acceptable to banks in the new regime if implemented. As per proposal under consideration the interest rate under this could be little less than saving bank rate which is average 4% and banks in turn can lend gold so collected to jewellers at 5.5 to 6% rate which is the leasing rate prevalent.
Such experience was successful globally. Cameron Alexander Manager, Precious Metals Demand, West Asia and Asia, GFMS Thomson Reuters told business standard, “In recent years Turkey had launched gold deposit scheme and as at the end of June, banks were holding almost 270 tons of gold on behalf of depositors which is sizable quantity. Such schemes have been implemented in Taiwan, Vietnam, and South Korea as well in the recent past with success. However, the result could be different in India based on consumers close affinity towards gold.”
Source who is familiar with the development said that while no final decision has been taken so far but to make gold deposits depositor friendly and for that a part of the gold deposit will be kept free from lock in. minimum size of the deposit could be reduced to 100 grams from 500 grams at present.
Source: business-standard

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