The Gold Monetization Scheme - Its Impact On Indian Banking

THE GOLD MONETIZATION SCHEME – ITS IMPACT ON THE
INDIAN BANKING SYSTEM AND INDIAN ECONOMY.
Introduction:
Gold is the widespread and constant used commodity of India. India is one of the largest
importers of Gold in the world and holds gold reserves. However, most of this Gold is stored in
the bank lockers with a return value only upon sale. The demand for Gold in India has risen over
the years especially during the recent pandemic when the gold price reached unpredicted heights
in the wake of market uncertainty.
To make optimum utilization of the invaluable assets, the Indian government introduced the
Gold Monetization Scheme (GMS) to bring together gold held by household and institutions in
the country and encourage its use for productive purposes, with an aim to reduce country's
dependency on gold imports. Through this scheme (GMS), the government revamped and linked
together the existing gold deposits scheme and gold metal loan scheme; allowed investors to earn
term deposits, along with security and earn interest earnings, on their gold investment also the
scheme enabled investors to save on gold storage cost and take the benefit of GMS deposit
returns. So, the scheme aims to encourage gold investments and unlock the privately held gold
stock, most of which is stored idle in lockers across the country.
Objectives of the study:

• To understand the need for various gold scheme in India.
• To understand the procedure of GMS which is run by banks.
• To study the differences in Gold Monetization Scheme, sovereign gold bond scheme.
• To study the progress achieved by the government in these schemes.
• All scheduled commercial banks, excluding RRBs, are eligible to implement the Gold
Monetization Scheme to their customers so they can keep their Gold in storage lockers
that are offered by the bank.
• How to invest?
The pre-requisite for investing in GMS is having a savings or current account with a partner
bank. The steps to open a deposit under GMS with the partner bank are mentioned below.
1. Visit the partner bank where the customer has a savings or current account.
2. Fill the application form for GMS and get the counterfoil for the same and can then visit
the bank’s partner Refinery Purity Testing Centre.
3. The customer will have to furnish the counterfoil at the Refinery Purity Testing Centre.
4. At this stage, they will have to submit their gold for the assaying and melting process.
5. Post this process, the customer will be given a deposit receipt containing the gold
quantity with purity 995.
6. The depositor will have to submit this receipt to the branch within 30 days.
7. The partner bank will provide the final deposit certificate on the day of deposit receipt
submitted by the depositor or after completion of 30 days after the date of tendering the
gold at the CPTC (Collection and Purity Testing Centre) whichever is later.
Content:
Under this scheme, individuals can deposit a minimum of 30-grams of gold in bullion or in the
form of jewellery with the bank for a year and earn tax free interest. Under the sovereign bond
scheme, gold bonds will be issued in rupees and denominated in 5 Grams, 10, 50 and 100 Grams
of gold.
Gold Monetization Scheme:

Individuals can make deposit under this scheme in 3 buckets:
Short term 1 to 3 years that is rollout in Interest that will be
multiples of 1 year. denominated in volume terms
or in gold gram.
Medium term 5 to 7 years. Interest that will be
denominated in rupees and
based on the value of gold
that was deposited.
Long term 12 to 15 years. Same as medium term.
Short Term Bank Deposit (STBD)

The following are the details about STBD scheme:
• Allows tenure ranging between one to three years
• Allows broken tenures such as one year three months, two year four months, etc.
• The lock-in period and penalties will be determined by the designated banks
• The banks are free to set the interest rates on these deposits
Medium- and Long-Term Government Deposit (MLTGD)
The following are the details about MLTGD scheme:
• The designated bank on behalf of the Central Government will accept the deposits under
this scheme
• The maturity periods are five to seven years for the medium term and 12 to 15 years for
the long term
• The interest rates are 2.25% p.a. for the medium term and 2.50% p.a. for the long term
• Interest on deposit will be paid on 31 March every year
• The lock-in period on these deposit schemes is three years and five years, respectively.
Gold Monetization Scheme Eligibility:

All residents Indians can invest in this new Gold Monetization Scheme. 2015. The following are
the entities that are eligible to avail the new Gold Monetization Scheme:
• Individuals
• Hindu Undivided Family (HUF)
• Companies
• Charitable institutions
• Proprietorship and Partnership firms
• Any trusts including Mutual Funds or Exchange Traded Funds
• Central Government
• State Government
New Gold Scheme to Improve Economy:

The government has introduced 2 important schemes, the Gold Adaptation Plan and the
sovereign gold bond plan, which are expected to positively impact the economy. This scheme
serves two purposes in the economy:
• To mobilize the ideal gold in the country and put it to productive use in the economy.
• To provide customers with an opportunity to receive income in the form of interest on
their idle gold holdings.
Sovereign Gold Bond Scheme (SGBS):
SGBS was introduced to promote digital gold as an option in contrast to buying actual gold. The
price of bonds, issued both in paper and demat forms, is fixed which is based on the prevailing
price of gold. The investment of premature withdrawal from the fifth year onwards. The SGBS
has also been made eligible to be traded on exchange and can be used for loans.
Objectives of sovereign gold bond scheme (SGBs):

• To reduce the demand of gold as India is biggest importer of gold.
• To encourage people to invest in demat gold bonds.
Benefits of investing in Gold Monetization Scheme:
By investing gold in the Gold Monetization Scheme 2015, an investor can enjoy the following
benefits:
• You would earn interest on your idle gold which would add value to your savings.
• The scheme would benefit the country by reducing its gold imports.
• The schemes offer flexibility to your investment or gold as and when you need it.
• You can start your investment with as low as 10 grams of gold.
A portion of the gold collected through the Gold Monetization Scheme can be sold or lent to
MMTC and RBI for minting of gold coins and sale. Thus, the gold deposited through this
scheme will be re-circulated in the country to help reduce gold imports. Gold being the most
precious asset of the country, the Government of India aims to use it for the purpose of nation
building and strengthen the country’s economy.
In India, gold is not just a symbol of prosperity and wealth but also a long-term investment. Gold
rates change daily based on various factors ranging from local economic factors to global trends.
Gold prices in Mumbai are revised daily. The prices of gold in the international markets
determine the rates in the city. The value of the US dollar plays a role in determining gold prices
in Mumbai. Gold is also available for trading as a commodity in the national and international
markets. In India, gold can be traded on exchanges such as National Commodity and Derivatives
Exchange (NCDEX), Multi Commodity Exchange (MCX) and National Spot Exchange (NSEL).
Literature review:
Gold has been uniquely important to the Indian economic system since very long because of the
religious, social, cultural ritualistic and behavioral reasons. as discussed about the importance of
gold in Indian system that provided a comprehensive review of how gold prices in India are
related to macroeconomic variables. Reserve Bank of India states that demand for gold in India
cannot be compared with other parts of the world. The population of India would continue to
generate demand for gold; the demand is from both investors and gold jewellery consumers. The
gold monetization scheme provides e-demat form of gold investment options like Gold Futures,
Gold ETFs, Gold FoF and E-gold are better than the physical form of gold. An investor can
make investment in any demat form of gold investment options as there are no significant
differences in the return of the various demat form of gold investment options. Various gold
schemes are good in general but not successful in Indian context due to emotional and
sentimental factor with the yellow metals. In the current budget, the interest earned on Gold
Monetization Scheme is exempted from taxes and there will be no capital gain tax for Gold
Monetization as well as bond scheme. This step of government may bring little hopes for the
success of Gold Monetization Scheme. These schemes will be transformative for the Indian gold
industry.
Conclusion:
The Gold Monetization Scheme is aimed at integrating the idle gold in Indian homes and temple
into the larger economy. This will reduce the massive gold imports into the country every year.
Gold imports are the second largest commodity imports into India after oil. As such, reduction in
gold imports will positively affect the larger economy by reducing the current account deficit. A
current Account Deficit (CAD) is a country's measurement of trade, which means that the
imports of trade and services are greater than the value of expected products. Through GMS,
nowadays, India is exporting gold to foreign country as per their demand to reduce CAD as well
as giving the strength to economy.
Recommendation:
The Gold Monetization Scheme was launched on 15 September 2015, by Prime Minister
Narendra Modi. The scheme is designed to help you earn interest on our unused gold lying idle
in bank lockers. The Gold Monetization Scheme is basically a new deposit tool to ensure
mobilization of gold possessed by various families and institutions in India. It is expected that
the scheme would turn gold into a productive asset in India and will be transformative for the
Indian gold industry.
References:
Www.bankbazaar.com
www.tradingeconomy.com
www.dinvestopedia.com
https://www.ibef.org/government-schemes/gold-monetization-scheme
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THE GOLD MONETIZATION SCHEME – ITS IMPACT ON THE

INDIAN BANKING SYSTEM AND INDIAN ECONOMY.

Objectives of the study:

Gold Monetization Scheme:

Short Term Bank Deposit (STBD)

Gold Monetization Scheme Eligibility:

New Gold Scheme to Improve Economy:

Sovereign Gold Bond Scheme (SGBS):

Objectives of sovereign gold bond scheme (SGBs):

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