Instead of the ad hoc annual budgetary provisioning, there is an urgent need to lay a road map with a five-year vision plan for recapitalisation of public sector banks, which would require over ₹3.5 lakh crore by FY18. A Bank Investment Company (BIC), which can act as a core investment committee under the RBI, needs to be set up to hold equity shares in PSU banks. The BIC can will empower decision making, and enhance governance and administrative quality in PSU banks. A comprehensive review of Banks’ Boards, risk approval authorities, sector specialisations in banks, and carving out the CMD positions should also be done. At present, fixed deposits with maturity over five years are eligible for deduction under Section 80C of the I-T Act. However, this lock-in period is higher than the lock-in period of three years that is applicable for investments in Equity Linked Savings Scheme or tax-free bonds. The lock-in period of bank deposit eligible for tax rebate should be reduced to three years. Reducing the lock-in period will generate more medium-term deposits, and reduce asset liability mismatch. Excess cash balances of the Centre, currently with the RBI, can be auctioned to SCBs to enhance the sector’s liquidity forecasting capability, reducing money market volatility and also allowing the government to earn interest. With the withdrawal of the 80:20 scheme recently, gold imports have reverted to a higher trajectory in October-November 2014 after remaining subdued in the earlier part of the fiscal year. Policy effort should be to incentivise deferring purchase of gold and thereby defer gold import by maximum possible time.
In this context, Gold Deposit Account (GDA) can represent units of gold (notional) and provide gold price return in weight terms. Other features of the account will by and large mirror a normal savings deposit account. In addition, the returns on the GDA will mirror gold price returns. It will act as a deterrent to retail demand for gold, which is generally bought to be used at a later date.
The writer is founder, MD & CEO, Yes Bank & President, Assocham