The annual budget for FY 2076/77 of Nepal presented by FM Dr. Khatiwada stated that necessary system will be prepared to allow Nepali citizens to deposit Gold, silver and other precious metals in banks as interest earning deposits. Although the preparation of workable framework may take time, it is a good news for everyone—the gold/silver/other precious metals owners, banks and the government.
The precious metals like gold and silver has very least productive purposes and people mostly acquire them for cosmetic purposes or as a symbol of social status. Thus, bringing gold and silver held by household and individuals into the banking system as deposits will allow the owner/depositor earn interest with tax exemption and at the same time it will add value to the economy.
Likewise, the banks will issue Gold Certificate to the depositors which can be easily tradable in the market and/or the certificate holder can take loan with the certificate as collateral.
The Gold deposit is surely attractive for individuals but at the same time it is also beneficial for the banks. The Gold deposits that banks receive can't be taken out as loan, but it can be used to fulfil the CRR and SLR requirements set by the central bank.
The Statutory Liquidity Ratio (SLR) is the requirement under which banks need to invest on government approved securities or gold against the total amount of credit they are lending. The Banks can earn interest on these liquid assets. Likewise, Cash Reserve Ratio (CRR) is the minimum percentage of total deposits that banks have to either hold in cash or as deposits in NRB, where they can’t earn any interest.
According to the Monetary Policy of FY 2075/76, the CRR has been set at 4% for all BFIs (Commercial banks, development banks and finance companies). Similarly, the SLR has been set at 10% for commercial banks, 8% for development banks and 7% for finance companies.
For example if you deposit Rs 100 in a commercial bank, after meeting CRR, SLR and the CCD (Credit to core capital cum deposit ratio), the bank will be able to lend Rs 80. However, once the banks are allowed to accept gold deposits, these can be used to meet the CRR and SLR requirements and the cash can be lent for maximum utilization of the funds.
Similarly, if the modality to be developed by NRB allows, then the banks can also lend the gold to jewelers for a certain amount of time earning interest on it and generating returns.
The benefit of gold deposit doesn't limit to gold owners and the bank, it also extends to the economy as a whole. The Government of India had re-launched the gold deposit scheme to use gold as a currency on their 2015 Budget, with a prime motive to curve the gold import. During that period, India imported roughly 800 to 1000 tonnes of gold every year, which had a huge impact in their trade deficit and ultimately their current account deficit.
Similarly, when metals are monetized the deposit size of banks will enlarge and so will the economy.
Currently in India, the Gold schemes include Sovereign Gold Bond (SGB), the Indian Gold Coin Scheme (IGC) and the Gold Monetisation Scheme (GMS). Gold Monetisation Scheme (GMS) in India allows the resident Indians to deposit gold like cash in banks where they can earn periodic interests. The interest is determined by the central bank, Reserve Bank of India (RBI). However, only the banks designated by RBI can take in gold deposits.
The current eligibility criteria of GMS allows resident Indians (Individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies) to make deposits under the scheme. The opening of gold deposit accounts is subject to the same rules with regard to customer identification as are applicable to any other deposit account. The individuals can deposit a minimum of 30 grams gold to open an account, whereas no limit has been set for upper limit. Gold is accepted in the form of raw gold i.e. Gold bars, Coins, Jewellery excluding stones and other metals.
The major purposes behind allowing individuals to deposit gold in banks are:
- Mobilizing the idle gold and redirecting it towards productive use.
- Providing the gold-owners an opportunity to earn interest on their idle gold holding.
- Easing the liquidity requirement need of banks.
- Controlling the import of gold.
Thus, the bottom line is, if the government is able to prepare and implement the deposit scheme then it can be beneficial to all those who are associated. The modality and framework may be different than that of India, but the baseline goals remain the same.