Analysts, industry players welcome gold schemes

MUMBAI: The three gold schemes launched by the government will go a long way in putting the precious metal into productive use and would bring down bullion imports, analysts and industry players said.

Largest private sector lender ICICI Bank said these schemes are an important step towards unlocking $800 billion of gold wealth and channelising it towards development.

"The sovereign gold bond scheme serves as an effective financial investment instrument and still provides the benefits that consumers usually buy physical gold for. This will help re-balance the profile of household savings from more traditional forms of gold purchase towards a more productive form," ICICI Bank Managing Director and Chief Executive Officer Chanda Kochhar said.

On the gold monetisation scheme, she said this will constitute a new source of income for households for whom the metal served as a passive investment earlier, yielding no returns. This also has the additional benefit of reducing storage costs and eliminating security concerns.

Muthoot Pappachan Group, the only private company that has entered the gold recycling and purification business, said, "The best part of the scheme is that it eases the process of taking a gold loan for a customer, who can convert the bond into demat format also.

"Another benefit is that it gives additional cushion effect to customers by way of interest on the bond," Thomas George Muthoot, Director of the Muthoot Pappachan Group, told PTI.

Muthoot also said his company is planning to devise special packages to add fresh customers.

India Ratings principal economist Sunil Sinha said the three gold schemes are a welcome effort to reduce dependence on bullion imports, which has touched 562 tonne so far this year.

Although much would depend on how these schemes are rolled out, the chances of gold bond scheme succeeding are relatively high because investors of gold bars or coins may find gold sovereign bonds a better investment than holding a physical stock, as it would offer the benefit of gold without any handling and storage costs.

"We are hopeful that these initiatives will bring out the locker gold into the formal sector. These gold certificates/bonds will help reduce the country's over-dependence on imports. These schemes will have the desired impact in long run," said Keyur Shah, Chief Executive Officer of Muthoot Precious Metals, the Muthoot Pappachan Group arm that runs its gold recycling business.
C P Krishnan, whole-time Director of Geofin Comtrade, which is into bullion trading, said though interest to be paid on gold deposits (2.75 per cent without any tax) is on the lower side, overcoming the sentimental approach of the public towards gold will be the key factor determining the success of the scheme.

The World Gold Council (WGC) said the schemes will expand consumer choices and help the economy by lowering CAD.

"These schemes expand consumer choice and healthy competition among forms of gold, and the channels through which gold will be available to an average consumer will benefit the eco-system by raising standards, improving transparency and as a result, generating trust in an industry that has huge employment and export potential," WGC Managing Director Somasundaram PR said.

UBS Evidence Lab said in a survey that the new schemes will succeed as most of its survey respondents are highly likely to participate in the scheme and are not resistant to the idea of temple gold also being deposited.

However, it said it will take time for the scheme to gain traction, especially in rural areas, where a large portion of gold demand comes from. Despite potentially better performance than previous gold schemes, it expects limited gold market impact, the foreign brokerage's research arm said in a report.

On the macro impact of the schemes in reducing CAD, it said it could be an average 0.2 bps of GDP per year. "Better use of the gold stock and the direction of funds raised from auctioned gold deposits towards investment could improve growth, as 1 per cent of GDP switch away from gold can potentially add 0.2 per cent to GDP growth," it said.

Chirag Mehta, senior fund manager, Alternative Investments, Quantum AMC, said the success of these schemes depends on how fast they can attract and gain confidence of the masses. A lot of awareness is required, he said.

He also said that for the schemes to succeed, banks have to play a pivotal role and it would be better if the customers can walk into a bank which they trust to avail the scheme.

Meanwhile, leading jewellery player Malabar Gold & Diamonds said the scheme will not lead to dip in jewellery demand.

"We don't foresee any adverse impact. While gold imports will come down with this step, I hope the consumers will continue to invest in jewellery, rather than on gold bars and coins," Malabar Gold & Diamonds Managing Director O Asher told PTI.