India is one of the largest consumers of gold in the world and imports huge tones of gold each year. Though stocks of gold in India are estimated to be over 20,000 tones, mostly this gold remains dormant. The Gold Monetization Scheme (GMS) was proposed in the budget speech of 2015-16 as a measure to liquidate these huge stashes of gold held in Indian households and religious institutions or trusts and thus conserving our Forex Reserve.

Gold Monetization Scheme, which will replace both the present Gold Deposit and Gold metal Loan Schemes, will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold. A general outline of the draft of GMS is as follows.


The scheme aims at attracting even the small investors and household, hence any person with a minimum of 30 grams gold can join the scheme.

In Purity Centres

The process starts with the investor’s gold being tested at the Hallmarking/ purity testing centres approved by BIS. Here the customer is informed the approximate value of pure gold content in his metal, and is given an opportunity to opt out if he doesn’t agrees to the value. Otherwise he may sign the consent form for melting the gold.

Once the consent is obtained, gold is melted in the fire assay and the exact amount of pure gold is ascertained and a certificate for the amount and value of gold is issued to the customer.

In Banks

On production of the certificate the bank will open a gold Savings a/c. The gold that is collected by the purity centre is then credited in the customer’s A/c.

The gold A/c is in the nature of fixed deposit with a minimum lock-in-period of 1 year and the banks will pay interest at a rate which will be decided independently by each bank, this ensures a fair return to investors.

On maturity the account balance may be withdrawn in Cash or gold. The option as to the mode of withdrawal is to be exercised at the beginning so as to ensure the adequate amount of gold reserve with the bank.

The highlight of the scheme is that it is proposed to give tax exemption (viz. capital gain tax, wealth tax and Income tax) for the amount held in the account. While exemption from capital gains tax is a continuation of the old policy, the exemption proposed on interest is new, and could be the attractiveness to an extent.


The physical stock of gold is either held at the branch or at a refinery as decided by the management. The bank which is in possession of the gold has the following options.

  1. Utilise it to maintain its Reserve ratios. RBI as an incentive for the promotion of the scheme has proposed to include the deposited gold in the respective bank’s CRR/ SLR requirements.

  2. Sell the deposited gold to generate foreign currency, which could then be used for lending to traders.

  3. May be minted into coins/ bullions so as to be sold amongst customers or to be traded in the commodity market.

  4. Lastly the bank may extend stock loan to jewelers.

Under this scheme, the jewelers can open a loan account with the bank on the basis of terms and conditions of respective banks and once the loan is sanctioned and the amount is debited to the account, the physical delivery of gold is made from the refineries. The interest will be charged at a rate to cover the interest expense to the bank, the fee for refineries + the profit margin to the bank.

The banks can directly get gold from the international market on a consignment basis and lend it to the jewellers. If this route is more profitable, then the entire purpose will get defeated. Thus, this aspect will also have to be kept in mind, while deciding the interest rate.

Whatever be the option exercised, the draft guidelines indicate that banks in the country could benefit much from the scheme, as it opens another stream of income to them.