The scheme, which was submitted to the Reserve Bank of India (RBI) in the first week of March, is currently awaiting the apex bank's approval. "The RBI has permitted banks to offer only the domestically mobilised gold as gold loans to domestic jewellers," he said, adding that the bank is currently awaiting the central bank's guidelines on the scheme, immediately after which SBI will launch the scheme in the market.

The scheme is an open-ended one with a minimum maturity period of three years. For a three-year period the bank will offer an interest rate of 2.75 per cent, 3 per cent for a maturity period of four years, 3.25 per cent for five years,3.50 per cent for six years and 3.75 per cent for seven years.

"The scheme will offer premature withdrawal facility to deposit holders. However, penal interest will be charged on early withdrawal," the official pointed out and added that SBI will also offer rupee loans on the gold deposits which will carry an interest rate linked to PLR. "This will encourage deposit holders to earn returns on their deposits while still retaining the ownership of the gold deposited with the bank," the SBI official said and added that SBI will be able to penetrate the Indian market through its 14,000 branches in the country.

SBI has joined hands with five other nationalised banks for setting up five to six assaying units throughout the country and a refinery where SBI will have a majority stake.

SBI is also talking with two international bullion suppliers -- Rothschild and Credit Suisse First Boston -- for a strategic alliance in the proposed venture. The banks which have joined hands with SBI are Corporation Bank, CanaraBank, Allahabad Bank and Indian Overseas Bank.

According to a bank official, through the gold loan scheme and deposit mobilisation scheme, the central bank wants to tap at least a part of the country's 12,000-tonne idle gold reserves.

The launch of a tax-free gold deposit scheme was announced by the finance minister Yashwant Sinha during his second budget presentation last week.

Under the scheme, the interest on the gold deposit bonds will be exempted from income tax and the value of assets deposited in the gold deposit scheme from wealth tax. The gains through trading of bond and redemption would be exempt from capital gains tax.

Insight

Scheme may not find many takers

Despite the attempt at novelty by introducing a loan for gold facility, the scheme is unlikely to attract depositors. Providing loans at PLR in still expensive, considering that the interest paid on gold deposits is a maximum of 3.75 per cent.

Thus, a spread of nearly 10 per cent is unnecessary. Also, gold is heldfor its encashable value so, if owners have a future need for cash it makes more sense to liquidate the gold rather than borrow against it, incurring an additional cost. And to make the scheme work it is necessary to operate it as an amnesty scheme where the source is not questioned, as most of the gold in the country is acquired with unaccounted money.