New scheme to tap 13,000 tonnes of household gold in India.
Tuesday, March 9, 1999
New scheme to tap 13,000 tonnes household gold
Arvinder Kaur
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New Delhi, Mar 8: Household gold -- lying idle in lockers for years -- has suddenly acquired an edge with the Government announcing a new gold scheme to mobilise the yellow metal and banks working out strategies to lure housewives into trading their collection.
''The whole idea of gold banking is to make productive use of this unproductive asset -- estimated to be over 13,000 tonnes -- bring it into the financial markets and make it available at reasonable prices,'' says State Bank of India deputy general manager P Awasthi.
''Besides bringing down the import of gold, it would help reduce interest rates in the system and the economy would gain,'' says Awasthi.
Moreover, the availability of gold in the country would improve and there would be no hassles involved in buying gold, once the metal comes into the market, he says.
There was a time when gold banking was an important feature of banking operations. But it was banned once the Gold Control Act was passed in 1962. The act was later scrapped in1990.
The recent scheme announced in this budget would also free depositors from the problem of storage, movement and security for the gold in their possession and provide them a regular source of income.
To encourage the gold deposit scheme, the finance minister announced tax exemption on interest from the gold deposit bonds and the value of assets deposits in the scheme from wealth tax.
To be implemented by the Reserve Bank, the scheme aims at mobilising gold from households, charitable and research institutions.
''We are toying with the idea of offering a deposit rate of 3 to 4 per cent on the maturity of the deposits besides other incentives like loans and premature withdrawal facility to attract people to part with their yellow metal deposits,'' says State Bank general manager MP Gupta, noting the bank plans are also afoot to issue a transferrable certificate to the depositor.
SBI, one of the biggest importer and seller of gold among 18 institutions, which was allowed to import gold last yearthrough the open general licence has already submitted a detailed plan to RBI and plans to set up a separate gold banking division, says Gupta.
''Once the bank receives the gold from the customer, it will be sent for assaying to check its purity. The final certificate and the rate of interest will be fixed on the basis of the assaying.
''The gold will be then sent for refining and converted into internationally accepted pure form. It would then be lended to jewellers at lower rate or used for trading in the international markets,'' says Awasthi.
But the main challenge lies in changing the mindset of people, who traditionally have been gold collectors and for those to whom safest avenue has been storing their ill-gotten wealth in the form of gold.
Agrees Awasthi, ''it is not that all the household gold will be declared. The hoarders would declare only small amounts which they want to convert into white.
''But this monetisation would benefit the service class who can keep their assets in safe depositsand even earn an income on it,'' he says.
''Since the people would be assured that they would get back pure gold, the concept of quality would gain importance in gold business,'' says Awasthi.
Bankers say they are even ready to bear the gold price risk at the time of repaying the depositors if the prices of the yellow metal rises in the intervening period.
''We have to take the risk and enter gold banking...India is the largest consumer of gold (800 tonnes in 1998), the second consumer, USA, consumes only half than us. We are in a position to command the international price of gold but lack any structural adjustments in this regard. For all this a beginning has to be made,'' he says.
''There are hardly any hallmarking facilities available in the country and if we have to compete, we will have to first put our house in order,'' says Gupta, adding the bank has already set up a hallmarking gold unit and are even creating separate gold divisions at satellite centres.
There is also tremendous potentialfor trading in gold products (jewellery). Though India is the biggest consumer of the yellow metal, our share in the worldwide jewellery market is just 1 per cent because of lack of quality certification and products meeting international standards.
''Gold is not getting the due share it should get in India. It can be placed in a better position if exploited well in the areas of designing, marketing and even exports,'' says GS Pillai, manager (north), World Gold Council.
Restructuring of the gold sector would also help in developing the export market as ''quality'' gold would be easily available at international prices, says, Awasthi, noting the bank in the last four months (after gold import was allowed under open general licence) has sold over four tonnes of the yellow metal in Delhi alone.
As of now because of the gold import scheme, many foreign players are evaluating the Indian markets for trading.
''We are studying the market in India and the risk factor involved. However, in tie-up with SBI, welast year did business over Rs 1,000 crore,'' says Chris Kenny, manager, NM Rothschild, a London-based supplier.
Though he agrees the political climate here keeps many a potential trader away, ''we are taking the risks and keeping five to six tonnes of gold in the bank without any payment.''
To reduce the risk in holding gold on its account, SBI has entered into the tie-up with Rothschild, to undertake sale of gold on consignment basis. ''SBI would purchase at the end of the day only the actual gold sold by its retail branches,'' says Gupta.
''The bringing of gold under OGL also helped shift import from hawala route to official channels and the Government can ascertain how much exactly was being imported,'' says a gold council official.
He, however, rues that increasing the customs duty on gold import last month -- from Rs 250 to Rs 400 per 10 grams -- would again revert the trade back to the hawala route.
A State Bank official said according to reports, in the past one month, around 20 per cent of import has reverted back to the hawala route.
''Once the gold in the black market is cheaper than that officially available, small traders would obviously go to illegal suppliers,'' the gold council official says, noting ''what we advocate is reverting or reducing duty on gold.''
More business would anyway mean more revenue for the Government, he says, adding that, ''otherwise the whole new measures would be defeated.''
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