RBI issued direction for Gold Monetization Scheme

The Reserve Bank of India (RBI) on 22 October 2015 issued a Direction to all Scheduled Commercial Banks (excluding Regional Rural Banks) on implementation of the Gold Monetisation Scheme, 2015 notified by the Union Government.
The RBI issued the direction to banks in exercise of powers conferred on it under Section 35A of the Banking Regulation Act, 1949.

The GMS 2015 will replace the existing Gold Deposit Scheme, 1999.

Directions on implementation of GMS 2015
• The deposits outstanding under the Gold Deposit Scheme will be allowed to run till maturity unless the depositors prematurely withdraw them.
• Resident Indians (Individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies) can make deposits under the scheme.
• The minimum deposit at any one time shall be raw gold (bars, coins, jewellery excluding stones and other metals) equivalent to 30 grams of gold of 995 fineness.
• There is no maximum limit for deposit under the scheme.
• The gold will be accepted at the Collection and Purity Testing Centres (CPTC) certified by Bureau of Indian Standards (BIS) and notified by the Central Government under the Scheme.
• The deposit certificates will be issued by banks in equivalence of 995 fineness of gold.
• The principal and interest of the deposit under the scheme will be denominated in gold.
• The designated banks will accept gold deposits under the Short Term (1-3 years) Bank Deposit (STBD) as well as Medium (5-7 years) and Long (12-15 years) Term Government Deposit Schemes. While, STBD will be accepted by banks on their own account, but the latter will be on behalf of Union Government.
• There will be provision for premature withdrawal subject to a minimum lock-in period and penalty to be determined by individual banks.
• Interest on deposits will start accruing from the date of conversion of gold deposited into tradable gold bars after refinement or 30 days after the receipt of gold at the CPTC or the bank’s designated branch.
• During the period from the date of receipt of gold by the CPTC or the designated branch to the date on which interest starts accruing, the gold accepted shall be treated as an item in safe custody held by the designated bank.
• The short term bank deposits will attract applicable cash reserve ratio (CRR) and statutory liquidity ratio (SLR). However, the stock of gold held by the banks will count towards the general SLR requirement.
• The opening of gold deposit accounts will be subject to the same rules with regard to customer identification as are applicable to any other deposit account.

Utilisation of Gold mobilised under GMS
The designated banks may sell or lend the gold accepted under STBD to MMTC for minting India Gold Coins (IGC) and to jewellers, or sell it to other designated banks participating in GMS. The gold deposited will be auctioned by MMTC or any other agency authorised by the Central Government and the sale proceeds will be credited to the Union Government’s account with the Reserve Bank.

The entities participating in the auction may include the Reserve Bank, MMTC, banks and any other entities notified by the Union Government. Banks may utilise the gold purchased in the auction for purposes indicated above.

Risk Management under GMS
Designated banks should put in place a suitable risk management mechanism, including appropriate limits, to manage the risk arising from gold price movements in respect of their net exposure to gold.

For this purpose, banks have been allowed to access the international exchanges, London Bullion Market Association or make use of over-the-counter contracts to hedge exposures to bullion prices subject to the guidelines issued by the Reserve Bank.

Grievance Redress Process under GMS
Complaints against designated banks regarding any discrepancy in issuance of receipts and deposit certificates, redemption of deposits, payment of interest will be handled first by the bank’s grievance redress process and then by the Reserve Bank’s Banking Ombudsman.