Lukewarm response to banks'gold deposit scheme

By Our Special Correspondent

MUMBAI, FEB. 18. The much hyped gold deposit scheme introduced by several banks in late 1999 and early 2000 has failed to achieve the target. However, State Bank of India, which launched the scheme first, is planning to introduce measures to make this scheme more attractive.

``Since launch of the scheme, SBI collected about 6.7 tonnes of gold till January 2001, whereas, Corporation Bank, Allahabad Bank, Indian Overseas Bank and Canara Bank have collected only between 400 and 500 kg as deposits in the last one year,'' said Mr. Dinesh Parekh, a Mumbai based bullion analyst. However, SBI was able get a market share of more than 95 per cent. SBI had set a target of 100 tonnes worth of gold deposits in one year when it launched one year ago.

``We realised that it calls for sustained campaigning and education of the people to bring in the required confidence in converting the physical holding into the form of Gold Deposit Bond,'' said Mr. Janki Ballabh, Chairman, SBI. ``This is the challenge, but it is catching up,'' said Mr. Ballabh, who was also the architect of the Gold Bond Scheme of SBI. According to him, for SBI, the scheme has been a success.

The scheme was first launched by SBI on November 19 in New Delhi to collect unused gold stocks in private possession. These stocks which were lying unutilised were to be utilised for national developmental programmes. It was also expected that if people joined the scheme, gold imports would come down considerably and jewellers would be able to source their stocks at cheaper rates. Jewellery made of these stocks could then be exported and the gold depositors were supposed to earn interest at higher rates ranging from 3 to 4 per cent.

According to an estimate, of a total of 1.4 lakh tonnes of gold around the world, private holdings in India are believed to be of the order of 13,000 tonnes which, in other words, means a stock holding worth over Rs. 6 lakh crores. Despite the existence of such a large private holding, India imports around 700 tonnes of gold annually.

Bank officials were highly optimistic when the scheme was in the pipeline and had set a target of about 100 tonnes worth of deposits in one year. ``However, their optimism was proved otherwise and the scheme has failed to take off from day one,'' Mr. Parekh added. According to him, this indicated that bank officials had failed in understanding the psyche of the Indian masses besides gauging their mood. The total deposits so far indicate that per person only 0.0064 mg worth of gold has been garnered under the scheme.The banks also failed to lend the gold deposits to jewellers at a higher rate. So far only about 500 kg of such deposits has been lent to traders and jewellers and exporters at interest rates ranging between 9 and 10 per cent.

``We are now concentrating on deployment of gold mobilised and also simultaneously stepping up our efforts for a faster mobilisation,'' said Mr. Ballabh, adding, ``We are planning to take this to more centres in the coming months.'' The SBI chairman also informed that there had been a progress in deployment of gold which was mobilised.

``The main reason for the failure was lack of facilities for melting jewellery, testing its purity and converting them into gold bars,'' said Mr. Parekh. According to him, banks had incurred heavy expenditure on converting the jewellery deposited into pure gold bars. In addition, the interest payable to the depositors started from the day stocks were deposited. Thus banks were actually incurring losses on gathering such deposits.

When the scheme was launched many banks failed to understand the psyche of Indian masses who traditionally love to possess gold in the form of jewellery however low the quantity may be. To them it is an investment which could come in handy on a rainy day. Further the offer was not attractive enough for the masses to deposit their jewellery with the bank to earn interest. Mr. Parekh pointed out that if the scheme had been linked with some kind of amnesty under which authorities were barred from questioning the depositor about the source of their wealth, the scheme could have proven to be more attractive.

Second, most of the gold in the form of jewellery is in the possession of women who do not wish to bear the losses towards melting and purifying cost as well as making changes. These losses are not compensated even by the interest offered by the bank even after 5 or 7 years of the interest accrued. Most important fact is that people do not trust the banks' report about the purity of their jewellery especially in the absence of the facilities for melting and purifying at the bank's end.

Even banks are paying excessively high charges towards melting and purifying which in other words does not compensate them the interest paid to the depositors despite charging higher interest rate on lending the stocks to jewellers and bullion traders. Moreover, there are no proper guidelines relating to the lending of the gold stocks to traders and exporters and how would they utilise such stocks besides the absence of specific timeframe in which it was supposed to be returned to the banks. However, it is felt that the scheme can be successful only if immunity/amnesty is tagged on and the shortcomings are ironed out.

Send this article to Friends by E-Mail

Section  : Business
Previous : Dubai shopping festival - an entertainment of
           sorts
Next     : The interest rate wish