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Jewellers may soon offer higher interest on gold deposits
The biggest bullion-importing bank in India plans to team up with jewellers for the first time to offer a gold deposit scheme, hoping ease of access and attractive interest rates will tempt people to part with their jewellery and relieve tight supplies.
Bank of Nova Scotia is in talks with trade group the Gems and Jewellery Trade Federation (GJF) and the Reserve Bank of India (RBI) to finalise details, the head of the bank's Indian bullion operations said.
Gold imports to the world's biggest bullion buyer have all but dried up after steps taken by the government and RBI to cut them to help rein in a record current account deficit, leaving domestic jewellers scrambling for supplies.
With demand still strong and expected to rise in the next few months as the festival season starts, the gold industry has turned its sights on the 20,000 tonnes of gold thought to be squirrelled away in homes.
"It's in a fairly advanced stage. There are a couple of issues to be sorted out, so once (they are) sorted out, it could be launched," said Rajan Venkatesh, managing director of Scotiabank's Indian bullion operations. He declined to spell out the problems or the details of the scheme.
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Jewellers may soon offer higher interest on gold deposits
GJF's chairman, Haresh Soni, said the deposit scheme was currently under discussion with the RBI, and the trade group was hoping to get approval from the central bank in four or five weeks. The RBI declined to comment.
Soni said he had proposed interest rates for the scheme of 2.5 to 3 percent of the gold price, to be paid in gold.
Similar schemes run by banks on their own offer lower rates and have not been popular. Indians prefer to hold their gold in ornament form and need strong incentives to give up heirlooms and wedding gifts.
India's government and central bank have taken several steps this year to stem the flow of gold into the country, including imposing a record 10 percent duty on imports, to help reduce the current account gap.
Gold is the most expensive non-essential import for the country and shipments hit a record 162 tonnes in May.
The central bank introduced a rule in July making it necessary for 20 percent of all imports to be re-exported, largely as jewellery. The complexity of the rule prompted banks to stop importing for more than two months.
Consumer demand, however, has not slowed, with the World Gold Council forecasting it to exceed 1,000 tonnes for the year.
Jewellers may soon offer higher interest on gold deposits
HURDLES?
Scotiabank's plan aims to enlist jewellers to collect the gold, which could make it more accessible in a country where many people use family-run jewellers for generations and banks are few and far between in rural areas.
Other attractions of the scheme could include more flexibility in the duration of deposits plus tax-free interest.
Soni said he had proposed a lock-in period for the deposits with Scotiabank of two to seven years, compared with the three to five years in a similar scheme run by state-owned State Bank of India (SBI).
Indians often use gold as a ready source of liquidity in times of need, making longer-term deposits less attractive.
SBI offers interest rates of 0.75 percent to 1 percent on gold deposits, depending on the time period.
The Scotiabank scheme will start small, with just 500 jewellers likely to be enrolled initially, according to the trade body, which has a network of 300,000 jewellers. It hopes to expand that to 10,000 jewellers in the first six months.
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