Gold Monetization Scheme

Gold is not only used as jewellery, but also as an investment. Gold jewellery or coins are often kept in the house. You can earn money just by keeping gold in the house. Banks provide this facility to you under the Gold Monetization Scheme. The Reserve Bank of India (RBI) had issued guidelines regarding the Gold Monetization Scheme in October 2015. Under this scheme, customers can deposit their gold in the bank and get interest on it. Let us learn about this scheme in detail.

                                                                                                                                Subas Tiwari

Who Can Deposit Gold?

Indian residents falling under the following categories:

  • Individual: Single or jointly
  • HUFs
  • Proprietorship and Partnership Firms
  • Trusts including Mutual Funds/ Exchange Traded Funds registered under SEBI Regulations
  • Companies
  • Charities
  • Central Government
  • State Government or any other institution owned by the State Government

Joint deposit of gold by two or more eligible depositors is also permitted under the Gold Monetization Scheme. In such cases, the deposit shall be credited to the joint deposit account opened in the name of such depositors.

Gold Deposit Limit and Scheme Types

The minimum limit for depositing gold in the bank under the Gold Monetization Scheme is 10 grams. There is no maximum deposit limit. There are three options for depositing gold in the Gold Monetization Scheme. Short term bank deposits, medium term bank deposits and long term bank deposits. The tenure of Short Term Bank Deposit (STBD) ranges from 1-3 years. At the same time, the tenure of medium term and long term deposits is 5-7 years and 12-15 years respectively.

Interest Rate Details

Talking about the interest on gold deposited in the bank under the Gold Monetization Scheme, the interest in short term deposits in Punjab National Bank ranges from 0.50 percent to 0.75 percent annually. Whereas in SBI, this rate ranges from 0.50 percent to 0.60 percent per annum. Both the banks offer 2.50% annual interest on long term deposits and 2.25% on medium term deposits. Under the scheme, banks will accept raw gold like gold bars, coins, and ornaments (without stones and other metals).

Bank will Give Gold Deposit Certificate

To deposit gold in the bank, customers need to fill in the application form, ID proof, address proof and investment form. Under the scheme, the Gold Deposit Certificate will be issued to the customers by the authorized branch of the bank. This certificate will be issued for pure gold (purity of 995). Nomination facility is also available under the Gold Monetization Scheme on the lines of other Rupee Deposit Schemes.

How Will the Payment be made on Completion of Maturity Period?

Those who deposited in the scheme in PNB before April 5, 2021, would be paid both principal and interest on maturity either in the form of gold or as an amount equal to the gold deposited + interest thereon. In both PNB and SBI, those who have deposited gold in the Gold Monetization Scheme on or after April 5, 2021, will be required to pay the principal amount on maturity under the short term deposit option either in the form of gold or as deposits on completion of the maturity period. It will be done in the form of an amount equal to the gold made. Interest will be paid in rupees.

Under the medium and long term deposit option, the principal will be paid on maturity either in the form of gold or as an amount equal to the gold deposited + interest thereon. However, in case of premature withdrawal, the payment will be in rupees only. Whether the maturity amount is in gold or in money, it is up to the customer.

Rules Regarding Premature Withdrawal

Short Term Option: Premature withdrawal may be allowed. However, no interest will accrue in case of withdrawal before completion of one year from the effective date of deposit. In all other cases, a prepayment penalty of 0.15% will be levied.

Medium Term Option: Withdrawals are allowed any time after 3 years. But interest will attract penalty.

Long Term Option: Premature withdrawal is allowed any time after 5 years. But interest will attract penalty.

FAQs (Sourced from RBI website as on 18th May 2022)

  1. Query:Are banks required to obtain RBI approval to participate in the Gold Monetization Scheme, 2015?

Response: No. However, banks should submit to RBI the implementation details including names of the Collection and Purity Testing Centres (CPTCs) and refiners with whom they have entered into tripartite agreement and the branches operating the scheme. Banks should also report the amount of gold mobilised under the scheme by all branches in a consolidated manner on a monthly basis in the prescribed format.

  1. Query: Who is eligible to make a deposit?

Response: Resident Indians [Individuals, HUFs, Proprietorship & Partnership firms, Trusts including Mutual Funds/Exchange Traded Funds registered under SBI (Mutual Fund) Regulations, Companies, charitable institutions, Central Government, State Government or any other entity owned by Central Government or State Government].

  1. Query: What is the procedure for a customer to make a deposit under the scheme? Does interest on deposit start accruing from Day 1 of depositing the gold with CPTC/GMCTA/designated branch?

Response: An eligible depositor can open a Gold Deposit Account with any of the designated banks after meeting the KYC norms. Generally, deposits under the scheme shall be made at the CPTC/GMS Mobilisation, Collection & Testing Agent (GMCTA) which would then test the purity of the customers’ gold in their presence and issue deposit receipts of the standard gold of 995 fineness to the depositor and also inform the customers’ respective bank about acceptance of deposit. The designated bank will credit Short-Term Bank Deposit (STBD) or Medium/Long-Term Government Deposit (MLTGD) account of the customer, as is applicable, either on the same day of receipt of deposit receipt by the depositor or within 30 days of deposit of gold at CPTC/GMCTA (regardless of whether the depositor submits the receipt or not), whichever is earlier.

Thereafter, the interest on deposits will start accruing from date of conversion of gold deposited into tradable gold bars or 30 days after receipt of gold at the CPTC/GMCTA, whichever is earlier.

  1. Query:What is the minimum and maximum amount of gold that can be deposited under the scheme?

Response: The minimum deposit at any one time is 10 grams of raw gold (bars, coins, jewellery excluding stones and other metals) and there is no maximum limit for deposit under the scheme. The quantity of gold deposited will be expressed up to three decimals of a gram.

  1. Query:Can a deposit under the scheme be made for a duration not covered under Short Term Bank Deposit (STBD), Medium Term Government Deposit (MTGD) and Long-Term Government Deposit (LTGD), say 4 years or 9 years or 16 years?

Response: The deposit under STBD (1-3 years), MTGD (5-7 years), and LTGD (12-15 years) can be made for only specified timeframe. These deposits can be subsequently renewed upon maturity.

  1. Query:Is it mandatory to complete the KYC for potential customers of GMS prior to depositing of gold?

Response: Yes, unless the potential depositor is already a bank’s KYC compliant customer.

  1. Query:How will a CPTC/GMCTA know that a depositor is already KYC compliant?

Response: Banks and the CPTCs/GMCTAs may put in place a mutually acceptable procedure in this regard and notify that to the relevant CPTCs/GMCTAs.

  1. Query:What are the various deposits under the scheme, the duration of such deposits, applicable interest rates, and periodicity of interest payments?

Response: The scheme envisages the following types of deposits –

Sr. No. Type of Deposit Duration Minimum Lock-in Period Applicable Interest Rate Periodicity of Interest Payment
i. Short Term Bank Deposit (STBD) 1-3 years As determined by banks As determined by banks As determined by banks
ii. Medium Term Government Deposit (MTGD) 5-7 years 3 years 2.25% p.a. Simple Interest annually or cumulative interest at time of maturity compounded annually.
iii. Long Term Government Deposit (LTGD) 12-15 years 5 years 2.50% p.a. Simple Interest annually or cumulative interest at time of maturity compounded annually.
  1. Query:Who determines the rate of interest on the Medium and Long-Term Deposits?

Response: It is determined by the Central Government and advised to banks by RBI.

  1. Query:Is it possible to have joint ownership under the scheme?

Response: Joint deposit of two or more eligible depositors is allowed under the scheme. The deposit will be credited to a joint deposit account opened in name of such depositors. The existing rules on joint operation of bank accounts including nomination will be applicable.

  1. Query:Can a depositor close the deposit before the minimum lock-in period?

Response: In case of STBD, the corresponding provisions will be as determined by designated banks. In case of MTGD or LTGD deposits, premature closure before the minimum lock-in period is available in case of death of depositor or default of loan taken against MLTGD certificate. 

  1. Query:Can a customer get back his jewellery if the purity determined by the CPTC/GMCTAs is not acceptable to him/her and he/she does not want to invest in the GMS?

Response: The jewellery will be melted by the CPTC/GMCTAs to conduct the fire assay and the customer can then get back gold only in post-melted form. Thus, the decision regarding taking back jewellery in the original form must be taken by the customer after XRF test and before giving consent for fire-assaying.

  1. Query:In what form will the depositor get back his gold at maturity?

Response:

Sr. No. Type of Deposit Principal Repayment on Maturity Interest Repayment on Maturity
i. Short Term Bank Deposit (STBD)* In gold or INR equivalent of the value of deposited gold at time of redemption In INR with reference to value of gold in terms of Indian Rupees at the time of deposit.
ii. Medium Term Government Deposit (MTGD) In gold or INR equivalent of the value of deposited gold at time of redemption In INR with reference to value of gold in terms of Indian Rupees at the time of deposit.
iii. Long Term Government Deposit (LTGD) In gold or INR equivalent of the value of deposited gold at time of redemption In INR with reference to value of gold in terms of Indian Rupees at the time of deposit.
* with effect from April 05, 2021

In case of all types of deposit, the option of redemption of principal in gold or INR equivalent will be obtained at the time of making the deposit. Further, any premature redemption of MLTGD will only be in INR, while in case of STBD it will be as determined by banks.

  1. Query:Can a bank make repayment of the partial amount of gold (less than one gram) in INR in cases where the redemption is in gold?

Response: Suppose the principal amount is, say 302.86 grams of gold, and the customer has to be paid in gold, a bank can repay 302 grams in gold and 0.86 grams in equivalent amount of INR. It may be noted that the interest on deposit shall be calculated in INR on the value of gold at the time of deposit.

  1. Query:Is it compulsory for banks to participate in the auction of gold collected under the Medium and Long-Term Deposit schemes?

Response: No.

  1. Query:Can a depositor avail a rupee loan against the collateral of deposits made under the scheme?

Response: Yes. Rupee loans can be availed against the collateral of Deposit Certificates issued by the banks under GMS.

  1. Query:Can banks hedge their gold exposures arising from operation of GMS?

Response: Yes.

  1. Query:Is interbank lending of gold mobilized under GMS is allowed?

Response: Yes. Designated banks are allowed to lend gold mobilized under the scheme to other designated banks for similar use as prescribed under the scheme.

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