Gold Monetization Scheme (GMS) updated

Edited and republished on 05.04.2021

On Monday (05.04.2021), the Reserve Bank of India updated several amendments made to the Gold Monetization scheme 2015 to date and advised all designated banks to give adequate publicity to the Scheme through their branches, websites, and other channels. As per present guidelines, nominated banks authorized to import gold by RBI and designated banks participating in Gold Monetization Scheme (GMS), 2015 can extend Gold (Metal) Loans to exporters of jewellery and domestic jewellery manufacturers. As regards repayment, now it has been decided that the minimum quantity of gold that can be repaid under GML shall be one kilogram.
Gold Monetization Scheme (GMS) which includes the revamped ‘Gold Deposit Scheme’ (GDS) and revamped ‘Gold Metal Loan Scheme (GML) has been implemented with an idea of using the gold available within the country for productive purposes. Several estimates peg the gold held by households in India at a staggering 25000 tonnes, while the country on average imports 800 tonnes of gold each year. Hence, the GMS scheme is introduced with the aim of mobilizing the gold held by households and institutions of the country and facilitate its use for productive purposes, thereby, in the long run, reduce the country’s reliance on the import of gold.
Resident Indians [Individuals, HUFs, Proprietorship & Partnership firms, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations, Companies, charitable institutions, Central Government, State Government or any other entity owned by Central Government or State Government] can make deposits under the scheme. The gold deposit under the scheme requires a minimum deposit of 30 grams of raw gold (bars, coins, jewelry excluding stones, and other metals) at any one time. There is no maximum limit for deposits under the scheme. Joint deposits of two or more eligible depositors are also allowed under the scheme and the deposit in such case shall be credited to the joint deposit account opened in the name of such depositors. The existing rules regarding the joint operation of bank deposit accounts including nominations will be applicable to these gold deposits.
All deposits under the scheme shall be made at the Collection and Purity testing center (CPTC) accredited by the Bureau of Indian Standards and notified by the central government for the purpose of handling gold. After assaying the gold, the CPTC will issue a receipt to the depositor signed by authorised signatories of the center exhibiting the standard gold of 995 fineness. The receipt will be issued on behalf of the designated bank indicated by the depositor. At the same time, the CPTC will also send advice to the designated bank regarding the acceptance of a deposit. Against a certificate issued by the CPTC, banks open a gold deposit account for such depositors.
All designated banks (all scheduled commercial banks excluding RRBs) also at their discretion, may accept the deposit of gold at their designated branches, especially from the larger depositors like temple trusts, etc. All gold deposits under the scheme, whether tendered at the CPTC or the designated branches, shall be assayed at CPTC. The scheme provides further that banks may, at their discretion, also allow the depositors to deposit their gold directly with the refiners that have facilities to carry out final assaying and to issue the deposit receipts of the standard gold of 995 fineness to the depositor. The quantity of gold will be expressed up to three decimals of a gram.
All designated banks (all scheduled commercial banks excluding RRBs) will be eligible to implement the scheme. The deposit of gold can be made under two schemes namely Short Term Bank Deposit (STBD) and ‘Medium and Long Term Government Deposit (MLTGD)’ with a designated bank in the account of the Central Government. STBD is for a period of 1-3 years and MLTGD is for a medium-term period of 5-7 years or a long term period of 12-15 years or for such period as may be decided from time to time by the Central Government. An account opened with a designated bank under the Scheme is titled as Gold Deposit Account and denominated in grams of gold.
The designated banks are free to fix the interest rates on these deposits. The interest will be credited in the deposit accounts on the respective due dates and will be withdrawable periodically or at maturity with compound interest as per the terms of the deposit. Interest will be calculated from the date of conversion of gold deposited into tradable gold bars after refinement or 30 days after the receipt of gold at the CPTC or the bank’s designated branch, as the case may be, whichever is earlier.
The redemption of STBD will be either in Indian Rupee equivalent of the deposited gold and accrued interest based on the price of gold prevailing at the time of redemption, or both principal and interest in gold. The option in this regard shall be made in writing by the depositor at the time of making the deposit which shall be irrevocable. Whereas, in case of MLTGD the principal will be denominated in gold and interest payable shall be calculated in Indian Rupees with reference to the value of gold at the time of the deposit which will be paid in cash. Where the redemption of the deposit is in gold, an administrative charge at a rate of 0.2% of the notional redemption amount in terms of INR shall be collected from the depositor. Gold deposited under (MTGD) is allowed to be withdrawn before maturity any time after 3 years and a Long Term Government Deposit (LTGD) after 5 years with a penalty as may be determined by the concerned bank. Any pre-mature redemption of MLTGD shall be only in INR.
The stock of gold held by banks in their books will be an eligible asset for meeting the SLR requirement in terms of RBI Master Circular – Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) dated 1 July 2015. The gold mobilised under short-term bank deposit can be delivered to jewelers as gold metal loans. At present, banks import gold on a consignment basis for outright sale or to lend to jewelers under the ‘Interest-bearing Metal loan’. The gold received under MLTGD will be auctioned by the agencies notified by Government and the sale proceeds will be credited to Government’s account held with RBI.
The Reserve Bank of India will maintain the Gold Deposit Accounts denominated in gold in the name of the designated banks that will in turn hold sub-accounts of individual depositors. The rate of interest on such deposits maintained by the banks with RBI will be decided by Central Government from time to time. The current rate of interest on the medium-term deposit is 2.25% p.a. and on the long-term deposit is 2.50% p.a.