Gold deposit scheme: banks still undecided on interest rate

With just two weeks to go for the launch government’s much-awaited Gold Deposit Scheme there seems no consensus on the rate of interest banks can afford to pay to make this scheme a success.

Speaking at the India International Gold Convention, Neeraj Nigam, Deputy General Manager, State Bank of India, said banks can afford to pay not more than 0.75 per cent to 1 per cent considering the cost involved of collecting the gold from consumers largely in rural areas, checking the purity by melting and transporting it to the nearest vault of the bank.

“We had collected eight tonnes of gold under the old deposit scheme where the interest rate was 0.7 per cent and minimum gold deposit was 500 grams (30 grams in new scheme),” she said.

Nigam said banks would be able to pay two per cent if the government allows to use gold collected under deposit scheme as part of CRR (cash reserve ratio), SLR (statutory liquidity ratio). 

However, the government has already rejected banks’ demand for differential treatment for the gold collected under the scheme due to opposition from the RBI.

Rajan Venkatesh, Managing Director, Scotia Bank’s Indian bullion operations, said the government should give customers an option to deposit cash equivalent to the value of gold one is willing to deposit under the new scheme. 

This, he said, will also divert some jewellery and investment demand into the deposit scheme.

Jayant Pawania, Director, YES Bank, said the interest rate for gold deposit scheme should be 1-2 per cent, equivalent to dollar deposit as gold is  dollar denominated.

The government can incentivise customers by providing tax breaks to depositors, he said. Shekhar Bhandari, Executive Vice-President, Kotak Mahindra Bank, said the government should initially consider giving interest subvention to enable banks to pay a little higher rate and make the scheme a success.

Thomas Scaria, Head of Corporate Finance, Joyalukkas Group, said the interest to be paid on gold deposit should be decided by market forces and banks can easily lend the gold collected to the industry which is paying a 4-6 per cent on gold metal loan even as banks lending to the industry has come down as they consider this sector as risky.

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