 "Bullion bank for gold scheme suggested")
The central government’s Gold Monetisation Scheme (GMS) needs specialised banks or a bullion bank to successfully take off, suggest some bankers.
For, say the doubters, even after two rounds of clarification, one by the Reserve Bank (RBI) last week and another by the government on Sunday, the scheme is still beset by doubts. Depositors are still not clear of how the tax deducted source (TDS) provisions would apply. Many, including some temples, want their gold back within a certain maturity period. There are questions from smaller stakeholders such as the collecting centres’ purity testing ability and the risk that banks take on this.
So far, only 900 kg has been deposited under GMS. Compared to this, the scheme of sovereign gold bonds is much more successful. The latter’s first tranche got subscription for 917 kg. The second tranche closed last Friday and the subscription is expected to be much higher, due to banks’ aggressive push and the fact that market prices higher than the bonds' price. In the first issue, market prices were much lower.
On the GMS, bankers point to the risks they need to take — on the Collecting and Purity Testing Centres (CPTC), logistics, cost factors and whether the commission is adequate. Customers have other apprehensions, too.
At an India Gold Forum event here, organised by Bullion Bulletin and the World Gold Council, most agreed more time should be given to see of GMS succeeds. Neeraja Nigam, deputy general manager, precious metals, State Bank of India, said: “Customers are apprehensive about whether, at maturity, the gold is not given back. And, if they redeem deposited gold in cash and import is banned, then they might not be able to repurchase it.”She added: “I think they (the ministry of finance and RBI) have got their act together. After the clarifications, only the TDS issue remains, which according to them, would be addressed within three or four weeks.”
She suggested allowing dematerialisation and making it transferable would improve the scheme. In the earlier gold deposit scheme, demat making was allowed but there was none to get it done. At present, the National Commodity and Derivatives Exchange is ready to demat. She proposed setting up a gold bullion bank, on the lines of the National Housing Bank, for GMS.
Another proposal was from Raghav Singhal, general manager, global markets group, ICICI Bank. He suggested incentives for banks, such as on the cash reserve ratio or a priority sector lending status.
Another issue faced by the banks in implementation would be a tie-up with a CPTC. It may be noted that some noted refining entities, including MMTC-PAMP India, a joint venture between PAMP SA Switzerland and the government-owned MMTC, are reluctant to sign agreements with the testing centres. Rajesh Khosla, managing director for the JV, said they were reluctant to accept the purity tests of those centres as these were not capable of identifying the Platinum Group Metals, which are impurities.
MMTC has so far set up six equipped collection centres of its own and wishes to add another every month, to have 50 in the next three years, for GMS.
Other refiners argued on issues with collecting centers in case of a dispute on the purity they assigned. They say there is no speedy mechanism to solve disputes. As a result of banks and refineries having issues about CPTCs, tripartite agreements are not being signed. The scheme wants banks, centres and refineries to sign such agreements.
Collecting centres, also hallmark centres, argue the purity of their test is mostly accurate and any dispute between testing centre and refinery would be resolved between them, without the risk passing to the bank. “So far, 46 hallmarking centres have been upgraded to CPTC status and we are waiting to tie-up with banks and refineries. Some refineries are coming for a tie-up but banks are not ready,” said Harshad Ajmera, president, Indian Association of Hallmarking Centres, and of the All India Association of recognised Assaying &Hallmarking Centres. He added another 300 centres are ready to invest in and become CPTCs if those who are upgraded get business.
P R Somasundaram, country managing director at the World Gold Council, said there were opportunities for banks to come out with more products, including those that run along with gold accumulation schemes introduced by jewellers.
The bankers generally welcomed a suggestion from G V Sreedhar, chairman of the All India Gems & Jewellery Trade Federation, that jewellers be allowed to buy back gold jewellery from customers and deposit an equal quantity of gold with banks under GMS. Jewelleries were allowed to file their Expression of Interest with the Bureau of Indian Standards recently. According to an industry source, one jeweller has filed so far.
For, say the doubters, even after two rounds of clarification, one by the Reserve Bank (RBI) last week and another by the government on Sunday, the scheme is still beset by doubts. Depositors are still not clear of how the tax deducted source (TDS) provisions would apply. Many, including some temples, want their gold back within a certain maturity period. There are questions from smaller stakeholders such as the collecting centres’ purity testing ability and the risk that banks take on this.
So far, only 900 kg has been deposited under GMS. Compared to this, the scheme of sovereign gold bonds is much more successful. The latter’s first tranche got subscription for 917 kg. The second tranche closed last Friday and the subscription is expected to be much higher, due to banks’ aggressive push and the fact that market prices higher than the bonds' price. In the first issue, market prices were much lower.
On the GMS, bankers point to the risks they need to take — on the Collecting and Purity Testing Centres (CPTC), logistics, cost factors and whether the commission is adequate. Customers have other apprehensions, too.
At an India Gold Forum event here, organised by Bullion Bulletin and the World Gold Council, most agreed more time should be given to see of GMS succeeds. Neeraja Nigam, deputy general manager, precious metals, State Bank of India, said: “Customers are apprehensive about whether, at maturity, the gold is not given back. And, if they redeem deposited gold in cash and import is banned, then they might not be able to repurchase it.”She added: “I think they (the ministry of finance and RBI) have got their act together. After the clarifications, only the TDS issue remains, which according to them, would be addressed within three or four weeks.”
She suggested allowing dematerialisation and making it transferable would improve the scheme. In the earlier gold deposit scheme, demat making was allowed but there was none to get it done. At present, the National Commodity and Derivatives Exchange is ready to demat. She proposed setting up a gold bullion bank, on the lines of the National Housing Bank, for GMS.
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Another proposal was from Raghav Singhal, general manager, global markets group, ICICI Bank. He suggested incentives for banks, such as on the cash reserve ratio or a priority sector lending status.
Another issue faced by the banks in implementation would be a tie-up with a CPTC. It may be noted that some noted refining entities, including MMTC-PAMP India, a joint venture between PAMP SA Switzerland and the government-owned MMTC, are reluctant to sign agreements with the testing centres. Rajesh Khosla, managing director for the JV, said they were reluctant to accept the purity tests of those centres as these were not capable of identifying the Platinum Group Metals, which are impurities.
MMTC has so far set up six equipped collection centres of its own and wishes to add another every month, to have 50 in the next three years, for GMS.
Other refiners argued on issues with collecting centers in case of a dispute on the purity they assigned. They say there is no speedy mechanism to solve disputes. As a result of banks and refineries having issues about CPTCs, tripartite agreements are not being signed. The scheme wants banks, centres and refineries to sign such agreements.
Collecting centres, also hallmark centres, argue the purity of their test is mostly accurate and any dispute between testing centre and refinery would be resolved between them, without the risk passing to the bank. “So far, 46 hallmarking centres have been upgraded to CPTC status and we are waiting to tie-up with banks and refineries. Some refineries are coming for a tie-up but banks are not ready,” said Harshad Ajmera, president, Indian Association of Hallmarking Centres, and of the All India Association of recognised Assaying &Hallmarking Centres. He added another 300 centres are ready to invest in and become CPTCs if those who are upgraded get business.
P R Somasundaram, country managing director at the World Gold Council, said there were opportunities for banks to come out with more products, including those that run along with gold accumulation schemes introduced by jewellers.
The bankers generally welcomed a suggestion from G V Sreedhar, chairman of the All India Gems & Jewellery Trade Federation, that jewellers be allowed to buy back gold jewellery from customers and deposit an equal quantity of gold with banks under GMS. Jewelleries were allowed to file their Expression of Interest with the Bureau of Indian Standards recently. According to an industry source, one jeweller has filed so far.