Industry body ASSOCHAM advocates setting up Gold Bank & Gold Deposit Account
Apex industry body ASSOCHAM has mooted a proposal to the Finance Minister for setting up of Gold Bank and introduction of Gold Deposit Account (GDA) operated through scheduled commercial banks (SCBs) to minimize the smuggling of gold.
Gold Deposit Account (GDA), which will carry most of the features of
a savings bank account, is conceptually different from the
initiatives taken earlier to mobilize gold in the economy. It
will have the option of being funded by currency deposit (INR) as
well as by non-jewellery physical gold from the customer. Hence
it will help in financializing both the incremental demand for gold
as well as the existing stock of non-jewellery physical gold within
India, said Kapoor.
GDA will represent notional units of gold and provide gold price
return in weight terms, which will be a deterrent to retail demand
for physical gold. This has the potential to defer the need for
import of physical gold.
ASSOCHAM chief further said given the inherent cultural appetite for
gold in India
along with its feature of being a natural hedge against
inflation, the efficacy of administrative measures, beyond a
threshold, could get diluted. Policy effort should, therefore,
be towards incentivizing residents to defer the procurement of
physical gold, which in turn, would defer gold imports to an extent
part of procurement of retail gold happens in India because of its
properties like (i) inflation-hedge, and (ii) store of value. As such a large part of current procurement is an effort towards
locking in gold at the current price. In some cases like marriage,
retirement, etc., the actual need for physical gold is often
significant years away in the future.
the returns on the GDS will mirror gold price returns, it will be a
deterrent to retail demand for physical gold, where the sole purpose
of procurement is to lock in the current price for some personal use
in future. As such, GDA can potentially defer the need for
import of physical gold.
GDA in its proposed form, the chamber said will be funded by both
currency deposit (INR) as well as existing non-jewellery form of
retail gold (hallmark coins and bars up to 100 grams) by the customer
vis-a-vis earlier attempts, where only physical gold was used for
this process, the proposed GDA aims to financialise the incremental
demand for gold as well as the existing stock of physical gold within
the country. The GDA does not cover gold in jewellery form due
non-standardization in quality and substantial 'making charge' in the
said, after a bank creates GDA for its customer, the physical gold
collected from the customer is exported after maintaining adequate
inventory. The Bank in return, credits the customer's account
with units of gold, which reflects price returns overtime through the
channel of Participation Certificate issued by the GB.
Participation Certificate can be acquired by the bank after it
converts its export receivables from gold and deposits the INR
equivalent with the Gold Bank.
feels, the INR deposit received by the GB from domestic scheduled
commercial banks (SCBs) can be used to buy GoI securities, which need
not be marked to market. The INR investment in GoI securities can be
can be used to offset the USD interest liability. Any change in price
of gold will trigger an equivalent change in the GB's liability
through its Participation Certificate with the domestic SCB. As such,
the gold price risk is naturally hedged within GB's balance sheet.
notional units of gold under the GDA with the bank can qualify for
SLR status as per the Banking Regulation Act, 1949. The notional gold
can be valued at the existing price on reporting Friday for
calculation of SLR. The SLR status of the GDA with banks would be
crucial as this is the only channel through which banks can increase
their lendable resources.
income which the bank generates through SLR status of the GDA can be
used to pay a nominal interest to the holder of GDA. This nominal
rate of interest can be deregulated by the RBI.