The Union Cabinet chaired by the Prime Minister Narendra Modi has given its approval for introduction of the Sovereign Gold Bonds Scheme and Gold Monetization Schemes.
Sovereign Gold Bonds Scheme
The scheme will help in reducing the demand for physical gold by shifting a part of the estimated 300 tons of physical bars and coins purchased every year for Investment into gold bonds.
Points to Note
- Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold.
- Bonds will be issued on behalf of the Government of India by the RBI. Thus, the Bonds will have a sovereign guarantee.
- The issuing agency will need to pay distribution costs and a sales commission to the intermediate channels, to be reimbursed by Government.
- The bond would be restricted for sale to resident Indian entities. The cap on bonds that may be bought by an entity would be at a suitable level, not more than 500 grams per person per year.
- The Government will issue bonds with a rate of interest to be decided by the Government.
- The bonds will be available both in demat and paper form.
- The bonds will be issued in denominations of 5,10,50,100 grams of gold or other denominations.
- The price of gold may be taken from the reference rate, as decided, and the Rupee equivalent amount may be converted at the RBI Reference rate on issue and redemption.
- Banks/NBFCs/Post Offices/ National Saving Certificate (NSC) agents and others, as specified, may collect money / redeem bonds on behalf of the government (for a fee, the amount would be as decided).
- The tenor of the bond could be for a minimum of 5 to 7 years.
- Bonds can be used as collateral for loans.
- Bonds to be easily sold and traded on exchanges to allow early exits for investors who may so desire.
- KYC norms will be the same as that for gold.
- Capital gains tax treatment will be the same as for physical gold for an ‘individual’ investor.
- The amount received from the bonds will be used by GOI in lieu of government borrowing and the notional interest saved on this amount would be credited in an account “Gold Reserve Fund” which will be created.
- On maturity, the redemption will be in rupee amount only. The rate of interest on the bonds will be calculated on the value of the gold at the time of investment.
- The deposit will not be hedged and all risks associated with gold price and currency will be borne by GOI through the Gold Reserve Fund.
- Upside gains and downside risks will be with the investor and the investors will need to be aware of the volatility in gold prices.
- In order to ensure wide availability, the bond will be marketed through post offices/banks/NBFCs and by various brokers/agents (including NSC agents) who will be paid a commission.
Gold Monetization Schemes (GMS)
The main objective of introducing the modifications in the schemes is to make the existing schemes more effective. GMS would benefit the Indian gems and jewellery sector which is a major contributor to India’s exports. In fiscal year 2014-15, gems and jewellery constituted 12 per cent of India’s total exports and the value of gold items alone was more than $13 billion.
The existing Gold Deposit Scheme (GDS) and the Gold Metal Loan (GML) Scheme have been revamped.
Gold Deposit Scheme (GDS) – Points to Note
Collection, Purity Verification and Deposit of Gold
- Out of the 331 Assaying and Hallmarking Centres spread across various parts of the country, those which will meet criteria as specified by Bureau of Indian Standards (BIS) will be allowed to act as Collection and Purity Testing 1 Centres for purity of gold for the purpose of this scheme.
- The minimum quantity of gold that a customer can bring is proposed to be set at 30 grains.
Gold Savings Account
- In the revamped scheme, a Gold Savings Account will be opened by customers at any time, with KYC norms, as applicable.
- This account would be denominated in grams of gold.
Transfer of Gold to Refiners
- Collection and purity testing centres will send the gold to the refiners. The refiners will keep the gold in their ware-houses, unless banks prefer to hold it themselves.
- For the services provided by the refiners, they will be paid a fee by the banks, as decided by them, mutually. The customer will not be charged.
Tenure
- The deposits under the revamped scheme can be made for a short-term period of 1-3 years (with a roll out in multiples of one year); a medium-term period of 5-7 years and a long-term period, of 12-15 years (as decided from time to time).
Interest rate
- The amount of interest rate payable for deposits made for the short-term period would be decided by banks on basis of prevailing international lease rates, other costs, market conditions etc. and will be denominated in grams of gold.
- For the medium and long-term deposits, the rate of interest (and fees to be paid to the bank for their services) will be decided by the government, in consultation with the RBI from time to time.
Revamped Gold Metal Loan Scheme – Points to Note
Gold Metal Loan Account
- A Gold Metal Loan Account, denominated in grams of gold, will be opened by the bank for jewelers.
- The gold mobilized through the revamped GDS, under the short-term option, will be provided to jewelers on loan, on the basis of the terms and conditions set-out by banks, under the guidance of RBI.
Delivery of gold to jewelers
- When a gold loan is sanctioned, the jewelers will receive physical delivery of gold from refiners.
- The banks will, in turn, make the requisite entry in the jewelers’ Gold Loan Account.
- Interest received by banks: The interest rate charged on the GML will be decided by banks, with guidance from the RBI.
Tenor
- The tenor of the GML at present is 180 days.
- Given that the minimum lock-in period for gold deposits will be one year, based on experience gained, this tenor of GML may be re-examined in future and appropriate modifications made, if required.
