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SBI’s Gold Deposit Scheme
The Gold Deposit Scheme introduced by the State Bank of India is of 1999 vintage. It failed then. Will it succeed now? One does not know. But one does know that elections are round the corner and industry is in no mood to oblige politicians!
INDIA’S BIGGEST bank, the state-owned SBI or State Bank of India (towards the end of this article you will come to know why I reiterate the obvious, namely that the SBI is state-owned!), has come up with a gold deposit scheme (GDS) by way of what it calls ‘gold banking’.. If the scheme rings a bell, you are right. The scheme is a reintroduction of a short-lived scheme introduced in November 1999. Allegedly, the rising cost of imported gold has prompted the SBI to re-launch the gold deposit scheme. According to the bank, ‘GDS is in the nature of a fixed deposit in gold. Customers can deposit their gold under GDS which will provide them safety, interest earnings, tax benefits and a lot more. Its purpose is to mobilise the idle gold in the country and put it to productive use and provide the customers an opportunity to earn interest income on their idle gold holdings’.

The minimum quantity of gold to be deposited with the bank is 500 gm (gross) and there is no upper ceiling. GDS apparently caters only to the affluent sections of society apart from temples of the Tirupati and Guruvayur kind which receive gold (primary gold as well as jewellery) as offerings from devotees. Under the 1999 version of the scheme, Kerala’s Guruvayur Devaswom alone parked 400 Kg of gold.

The deposit can remain with the bank for three or four or five years and the interest allowed by the bank on these maturities are 1 per cent, 1.25 per cent and 1.5 per cent respectively. But the depositor should note that interest is computed not as a percentage of the monetary value of the gold deposited but as a percentage of the weight of the gold deposited; but the interest is credited to the depositor’s account in Indian rupee (INR). Thus if the depositor has deposited 1 Kg or 1,000 gm of gold for three years, the interest the depositor earns is 1 percent of the gold deposited, viz, 10 gm; it is converted into INR and credited to the depositor’s account. In other words, interest will be paid in the form of cash only and not in the form of gold. As is the case with all deposit products of banks, the interest allowed on the gold deposited may vary. Interest can be withdrawn by the depositor periodically or it can be allowed to accrue, in which case the accrued interest will earn interest.

The gold deposited is melted, assayed (tested) and minted (coined) at the India Government Mint (IGM) before the Gold Deposit Certificate is sent to the depositor within 90 days from the day the gold is deposited (The expenses incurred in this connection will be borne by the bank). It will indicate the weight of pure gold in the gold deposited, in 999 fineness. However, a provisional receipt is issued by the bank immediately upon receiving the deposit. With the help of the certificate, the depositor can claim the gold upon maturity of the deposit (alternatively, the depositor can claim back the INR equivalent of gold deposited at prices ruling on the day). Only 50 branches of the bank across the country have been permitted to entertain GDS. The deposit is transferable but under no circumstances, it can be withdrawn before one year. In other words, the lock-in period is one year. After one year, premature withdrawal is permitted after a penal cut (The penal cut is 0.5 per cent if withdrawn within three years and 0.25 per cent, otherwise). But loan is available in INR from any branch of SBI up to a limit of 75 per cent of the notional value of the gold deposited.

Importantly, the interest earned and the capital gain made, if any, from a rise in the price of gold upon maturity, are exempt from tax. The gold deposited will not be subjected to wealth tax too. Even more importantly, this provides an easy way of laundering the depositor’s unaccounted money.

If you have plenty of unaccounted money that you would like to launder, buy gold jewellery from individuals (you can find any number of individuals selling gold to goldsmiths and jewellers without either party insisting on documentation), deposit the jewellery with SBI under this scheme (individuals can open the account singly and jointly, apart from HUFs, Trusts and companies) and withdraw it upon maturity. You have gained respectability and so has your ill-gotten wealth; at the same time, you have not paid any tax whatsoever! None can ask you where you got all that gold jewellery from. After all, in the Indian milieu, every family, inter alia, inherits some gold jewellery. Unlike landed property, the gold jewellery you inherit or the gold jewellery you bequeath is not documented in our country, at least. Remember how Indira Vikas Patra or IVP helped many to launder their ‘hard-earned’ money? This scheme is a similar godsend.

With elections looming large and trade and industry in no mood to oblige politicians and political parties with largesse given the economic downturn, the SBI seems to have timed its entry into the GDS perfectly. Or has it been told to introduce this scheme by its majority stakeholder?

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