Mumbai: India’s plan to tap part of the 20,000 metric tonnes of idle domestic gold stockpiles may fail to enthuse investors as banks probably won’t match interest rates offered on cash, a jewellers’ group said.
While savings with banks fetch investors about 8 per cent to 9 per cent interest, gold deposits may not receive that kind of return, said Manish Jain, chairman of the All India Gems & Jewellery Trade Federation, which represents 300,000 jewellers.
India, the world’s second-largest consumer, on Tuesday proposed new guidelines to allow individuals and institutions to monetise their holdings and lower the nation’s reliance on imports, easing pressure on the current-account deficit. The banks will be free to set interest rates on gold deposits and customers will be able to redeem their bullion in cash or metal after a minimum period of one year, the draft rules say.
“We need to make the plan a little more lucrative, more practical, to have more people to be motivated and come forward to deposit gold,” Jain said in a phone interview from Mumbai on Wednesday. “Why should a person go to a bank and deposit his or her gold? You are given 8 per cent to 9 per cent for cash deposits and 1 per cent on gold. Will it be lucrative?”
A gold deposit plan run by the State bank of India since 1999 managed to attract just 15 tonnes because of a requirement to deposit a minimum 500 grams and low interest rates of 0.75 per cent to 1 per cent, according to UBS Group AG.
“Real demand and the scheme’s success will depend on the attractiveness of interest rates offered by banks,” Nomura Holdings Inc analysts led by Sonal Varma said in a report on Wednesday. “This may still turn out to be an attractive option for households and temple trusts which currently earn nothing on gold, and now could get a return and storage as well.”
