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Tamal Bandyopadhyay & Anirban Nag
Mumbai, March 4: The Reserve Bank of India is planning to bring down cash reserve ratio (CRR) on gold deposits and exempt the yellow metal from statutory liquidity ratio (SLR).
In effect, banks will be required to maintain a twin-level of CRR -- one for rupee deposits liability and another for gold deposits. The central bank is expected to issue the guidelines on gold bonds over the next few days.
To kickstart the gold-deposit scheme, the RBI is set to allow hedging of the yellow metal in the international market.
At present, the CRR on cash deposit-liability is pegged at 10.5 per cent following the half a percentage point CRR cut on Monday along with a cut in bank and repo rates. "The CRR on gold deposits is likely to be pegged at a much lower level to help banks offer globally competitive interest rates," sources close to the central bank said.
The Reserve Bank may peg the CRR on gold deposits at 3 per cent, the minimum permissible CRR level as laid down under Section 42 of the RBI Act. The totalwaiver of CRR will be possible through an amendment but the central bank may not opt for that at this stage, sources said. For the banks' cash deposit liability, the minimum SLR stipulation is 25 per cent under Section 23 of the Banking Regulation Act.
The central bank will also allow gold hedging to take care of the price risk. "Banks will be required to hedge the price risk by buying options in the international market. Unless they are allowed hedging, no bank will be interested to launch the gold-bond scheme," sources said.
Bank will be directed to keep the asset-liability mismatches to the minimum. "No bank can avoid asset-liability mismatches completely. However, there should be efforts to keep it to the minimum level. While stronger banks can afford slight mismatches, the smaller ones should not be allowed to do so," sources said.
Finance minister Yashwant Sinha mooted the gold-deposit scheme in his budget to mobilise the "idle gold". Under the scheme, select banks will be allowed to accept golddeposits and issue interest-bearing certificates or bonds which, on maturity, can be reclaimed in gold. These certificates will be exempt from income-tax and the value of assets will not be subjected to wealth tax. Besides, capital gains arising out of such bonds will be exempt from capital-gains tax.
According to the RBI plan, banks will be allowed to issue certificates of three, five, seven and even ten years maturity. The certificates will be transferrable and traded in the secondary market to generate liquidity. "Some of the banks can even float an open-ended scheme. The RBI does not plan to fix the maturity profile and interest rates on gold deposits," sources said.
The designated banks are targeting temples and trusts to mobilise gold deposits. "Individual investors may not be forthcoming in the absence of the amnesty scheme. The focus of the industry will be on temples, trust and various charitable bodies to mobilise gold deposits," a senior banker said.
Over the last three years, India importedabout 2,000 tonnes worth of gold. "If the banks can manage to mobilise even 10 per cent of that amount, it will be worth $2 billion and to that extent the country will be able to save the foreign-exchange outgo," sources said.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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