Gold deposit scheme has been re-launched by the State Bank of India (SBI) after a gap of four years. This scheme, as the name suggests, would allow investors to deposit their surplus gold, in any form, with the bank and earn interest on the same.
The deposited gold will be checked for purity and melted at the Government of India mint. A certificate of purity will then be issued by the Government, which can be used by the investor to claim back the gold after the maturity period.
In the current form the scheme would allow investors to earn an interest between 1-1.5 per cent depending upon the period of investment. All the expenses in the process of melting will be borne by the bank itself. Moreover provisions are also there for premature withdrawal after one year albeit with a small penalty.
However, unlike regular deposits, interest here will be calculated in grammes and not in rupees. At the end of the maturity term, interest thereby earned shall be converted into rupee equivalent of gold and then paid back to the investor. For the principal, investor will have an option to claim back pure gold of 0.999 purity or cash equivalent of gold as on date of maturity.
The major plus point of the scheme is that, from the tax point of view, the advantage is with investors-interest earned as well as tax on any capital gains arising from a rise in price of gold after maturity is exempt from tax. Wealth tax is also waived for the gold deposited.
With a minimum investment limit of half-a-kilogramme, it is probably beyond the reach of the general public at large. Famous temples across the country which are known to receive huge donations in gold are likely to be the target customers for this scheme. Currently, just 50 branches of SBI are allowed to accept gold at large from the public.
This is no new scheme, in fact, way back in November 1999, this scheme was launched by the SBI for the public at large, but it did not really become popular, forcing its withdrawal around 2005.
However, it is worrisome that some of the reasons that contributed to the failure of the scheme have not been addressed even in the present offering.
One of the foremost lacunae is a missing amnesty option. If this scheme was combined with any kind of amnesty, under which authorities would not question the depositor on the source of wealth, then it would make much better sense. Another de-motivating factor is that most gold holdings is in the form of jewellery and that is in the possession of women who do not wish to bear production charges. These losses are not compensated even by the interest offered by the bank.
Another reason for the scheme not taking off then was the poor publicity. People did not even get to know about the existence of such a scheme, especially in the interior areas where most private holdings are still resident. The mistake has been repeated this time too as the scheme was launched with minimal advertising backup, mostly in a few select newspapers. Even in SBI's website one has do some serious searching to get to the scheme details page. http://www.statebankofindia.com/viewsection.jsp?lang=0&id=0,5,714
But if the scheme actually takes off this time, then it would be able to bring to productive use hundreds and thousands tonnes of gold known to be in the possession of Indian households where they do not really contribute to wealth creation. If deposited with the SBI, the gold deposits could become collateral, both for individuals as well as the country, to get credit at cheaper rates, which can be leveraged for the greater good of all.