Indian gold paperization scheme is failing so govt. boosts subsidy to banks

Section:

Banks to Get Commission for Unlocking Household Gold, RBI Says

By Rajendra Jadhav
Reuters
Friday, January 22, 2016

MUMBAI -- The government will pay banks a 2.5 percent commission to unlock the country's massive stash of gold under a new monetization scheme, the Reserve Bank of India said, as the ambitious plan received a poor response from banks and customers.

Prime Minister Narendra Modi launched the Gold Monetization Scheme on Nov. 5 to lure an estimated 20,000 tonnes of gold hoarded in households and temples into the banking system and trim the import bill of the world's second biggest gold consumer after China.

... Dispatch continues below ...



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But only a few kilograms trickled in over the last two months as banks showed little interest in popularizing the scheme because of negligible returns for them.

Now the government has decided to pay the participating banks a total commission of 2.5 percent, including 1.5 percent handling charges, for the first year, the RBI said in a statement late Thursday.

Support from banks is crucial to the success of the scheme. Similar programmes in the past have failed as they were not profitable for the banks.

Under the current scheme, citizens are encouraged to deposit jewellery, bars, or coins with banks so it can be refined to meet fresh demand and cut the need for imports.

The consumer would earn interest and, at the end of the deposit term, get the gold back in the form of bars.

But the public response has been lacklustre. Indians' penchant for bullion spans centuries and they would not part with their gold, which is seen as providing financial security, unless they were offered incentives such as higher interest rates.

Banks were saying they could not offer attractive rates unless the government compensated them for the loss from higher rates.

... For the remainder of the report:

http://in.reuters.com/article/india-gold-idINKCN0UZ2O2

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