The World Gold Council has urged the Government to target attracting gold coins and bars under the Revised Gold Monetisation Scheme and dematerialise the gold deposited with the banks under the scheme besides involving RBI in the entire process of R-GMS.
Gold jewellery often has an emotional and cultural attachment and gold depositors do not want their jewellery to be melted. As a large part of Indian household gold is in the form of jewellery, R-GMS initial thrust should to attract retail bars and coins as these are not melted.
R-GMS allows consumers or institutions to deposit gold in a Medium-Term Government Deposit (MTGD), for five and seven years (with 3 year lock-in) and a Long-Term Government Deposit for 12-15 years (with 5 year lock-in). On maturity the principal repayment is made in gold while interest is paid in rupees.
Interestingly, only six per cent of households are aware of the scheme and there are no incentives for banks to become involved in its operation.
In terms of operational improvements, the report said the dematerialisation of MTGD and LTGD is a key missing piece in the GMS jigsaw. This is important in igniting investor interest as demat gold holdings allows fungibility for investor portfolios.
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Banks should be allowed to independently take and service gold deposits instead of this being a government function. This will help them earn better margins and provide incentivise to customers.
Banks should be allowed to use the gold deposits by minting it to coins for increasing revenue which would allow them to offer higher interest rates and meet the cost of mobilising this gold.
Somasundaram PR, Regional CEO, India, World Gold Council said development of gold-backed financial products and fintech gold, all of which provide institutional pooling of gold as an alternative to household custody, should be promoted vigorously as part of overall gold monetisation framework.
Exchange trading mechanism and bold tax incentives to promote transparency in buying are fundamental to a more organised recycling market that underpins gold monetisation. The investment side of gold overall looks promising over the next few years as India pushes ahead on formalising many such sectors, he added.