The Hindu Business Line : Bankers propose gold-based deposit scheme

To mop-up deposits
Banks will buy gold futures to hedge against price variations
The new scheme is expected to eliminate the drawbacks of the erstwhile gold deposit scheme

Mumbai , Nov. 17

Bankers are trying to moot a gold-based scheme to raise the much-needed long-term deposits.

The scheme will be designed to induce people to invest in the yellow metal while simultaneously offering banks a new source of funds.

The `Gold Accumulation Scheme', as it is being referred to, was discussed by bankers at a meeting convened by Indian Banks' Association on Thursday. The meeting was convened to identify new ways to raise bank deposits.

The scheme, as explained by a bank official, will work as follows: a customer can buy gold by depositing the market price of the metal with the bank. The bank will provide the customer a receipt for physical deposit of gold. The customer can either get the gold in physical form or its value at the prevailing market price anytime after a specified period, say five or 10 years.

A customer can keep on depositing funds (in other words, buying gold) at intervals of his convenience and accumulate it for 5-10 years. Interest at a nominal rate will be paid on the deposit. For the customer, it will work like a systematic investment plan.

Banks are expected to customise the scheme to make it more customer-friendly.

On their part, banks will buy gold futures to hedge against price variations, said a bank official.

Indian Banks' Association is expected to submit a proposal to Reserve Bank of India for approval for the scheme, the official said.

Such gold-based deposit schemes are already in operation in some foreign countries, observed a senior official with State Bank of India group.

The new scheme is expected to eliminate the drawbacks of the erstwhile gold deposit scheme which failed to take off, he said.

The advantage of the new scheme is that banks will not have the problem of assaying the gold and its safekeeping. The objective of the old scheme, introduced in 1999, was to collect the gold lying with households and put it to productive use while also restricting imports of fresh gold.

At a meting convened recently, the Finance Minister had asked bankers to step up deposit mobilisation. While bank credit grew more than 30 per cent, deposit grew only by 20 per cent on an annualised basis.

The IBA meeting had also discussed various other ways of raising capital.

At the Thursday meeting of IBA, some bankers argued for raising interest rates on savings bank accounts (which is currently at 3.5 per cent), but there was no consent on the issue, said an official who attended.