This account will be operated through all scheduled commercial banks.
Gold Holders/Investors can deposit their physical gold with the bank, which will be credited to such account as gold grams (GGs). Such physical gold will be forwarded to the RBI. The bank will do the purity survey of the gold through machines installed at branches for such purpose to ensure that the Depositor gets credit the same day. The difference between the purity determined by the bank and as accepted by RBI will be to the account of the bank.
The RBI will transfer to the bank the monies equivalent to the gold deposited, on the same day as the deposit. The conversion will be at the RBI Official Price of Gold (OP), determined as below. Fluctuations in the price of gold deposited with the bank will be settled by the bank with the RBI everyday. The net effect of this will be that the Gold Deposited with the bank will get converted into Rupee deposits with the bank through a settlement with the RBI.
Such Gold Accounts will be linked to the Depositors Savings/Current Accounts and Savings/Current Account Interest as paid by the bank will be paid on EOD balances in the Gold Account.[1]
OP will be determined as LME Price X RBI Spot Dollar Rate X (1+Import and other duties applicable on import) and will be declared by the RBI at EOD everyday.
The Gold Account statement will show such OP (akin to NAV) in the statement everyday. This will ensure that the risk in the price of gold is still carried by the Depositor/Accountholder.
The Accountholder will be allowed to withdraw at such OP by giving a withdrawal request before 4 PM everyday. New investments can be made by making physical gold deposit as stated above. Alternatively, the Accountholder can instruct the bank to buy new gold and deposit into account at EOD OP alongwith money transfer before 4 PM from his linked Savings/Current Account.
Banks will automatically give credit on request upto 70% of such balances in the Gold Account. Such credit will be given for 60 days at a time and may be renewed provided the borrower makes good the higher of the interest due or the interest due plus the negative movement in the price of gold during these 60 days multiplied by his holdings.
The interest rate on such credit will be 2% above the Savings Rate.
This account has the potential to harness the dormant gold lying with retail investors into productive activity while fortifying the gold reserves of the RBI at the same time. If RBI does not wish to hold such gold, they can sell down the gold deposited through such scheme in domestic/ offshore markets. If they sell in offshore markets, they get hard currencies in exchange.