IBS.BC. 95 /23.67.001/99-2000

October 5, 1999

In terms of powers conferred by sub-section (7) of Section 42 of the Reserve Bank of India Act, 1934 (2 of 1934), Reserve Bank of India hereby exempts authorised scheduled commercial banks participating in the Gold Deposit Scheme from maintenance of average Cash Reserve Ratio (CRR) prescribed under Section 42 (1) of the Reserve Bank of India Act, 1934 on their liabilities under gold deposits mobilised in India.

2. The exemption stipulated above shall be subject to the CRR maintained by an authorised scheduled commercial bank at not less than 3 per cent of its total net demand and time liabilities as computed under Section 42(1) of the Reserve Bank of India Act, 1934.

(G.P.Muniappan)
Executive Director

IBS.BC. 96 /23.67.001.99-2000

October 5, 1999

All Scheduled Commercial Banks
(excluding RRBs)

Dear Sir,

As you are aware, some scheduled commercial banks have been authorised by RBI to import gold in terms of para 8.15 of Exim Policy 1997-2002. With a view to encouraging mobilisation of domestic idle gold under the Gold Deposit Scheme proposed to be introduced by the authorised banks, it has been decided to exempt these banks participating in the Gold Deposit Scheme from maintaining Cash Reserve Ratio (CRR) on liabilities under gold deposits mobilised in India. However, in view of the multiple prescriptions on different categories of liabilities, including zero CRR prescription on certain liabilities as stipulated under the law, the effective CRR maintained by the authorised banks on total Net Demand and Time Liabilities (NDTL), including the liabilities under the Gold Deposit Scheme should not be less than 3 per cent as required in terms of Section 42(1) of the Reserve Bank of India Act, 1934. A copy of the Notification DBOD.No.IBS.BC.95/23.67.001/99-2000 dated October 5, 1999 in this regard is enclosed.

2. With regard to the Statutory Liquidity Ratio (SLR), since the present prescription of SLR on total NDTL is 25 per cent, which is the statutory minimum required to be maintained in terms of Section 24 (2A) of the Banking Regulation Act, 1949, the effective SLR maintained by the nominated banks on total NDTL including the liabilities under Gold Deposit Scheme should not be less than 25 per cent. It is clarified that the mobilised gold with the bank will constitute an eligible asset under SLR if the banks hold such gold with themselves in physical form.

3. Banks are required to convert the liabilities and assets denominated in terms of gold into rupees for the purpose of compliance with reserve requirements/capital prescription requirements/balance sheet translation requirements. The conversion of gold into rupees may be done by crossing the London AM fixing for Gold/USD rate with the Rupee-dollar reference rate announced by RBI. The prevalent customs duty for import of gold will be added to the above value to arrive at the final value of gold.

4. The following consequential amendment may be carried out in the Manual of Instructions Vol. I – Part I – Chapter 12.

A sub-paragraph 12A.9(b)(xi) may be added as per Slip 1 attached.

5. Please acknowledge receipt.

Yours faithfully,

(Devaki Muthukrishnan)
General Manager

Encls: as above

Endt.DBOD.No.IBS. /23.67.001/99-2000 of date

Copy forwarded for information to :

1. The Chief General Manager, DBS, RBI, CO, Mumbai
2. The Chief General Manager, DEIO, RBI, CO, Mumbai
3. The Chief General Manager, ECD, RBI, CO, Mumbai
4. The Adviser-in-Charge, MPD, RBI, CO, Mumbai
5. All the Regional Offices of DBOD.

(J.G.Gupta)
Deputy General Manager

b) Other Deposit Schemes

xi) Liabilities on the gold mobilised in India under the Gold Deposit Scheme of authorised banks.

New Delhi , Dated, the 19^th August, 1999

S.O.670 (E) - In exercise of the powers conferred by section 27 of the Forward Contracts (Regulation) Act, 1952, (74 of 1952), the Central Government hereby exempts all forward contracts for the sale and purchase of gold within the country from operation of the provisions of the said Act if one of the parties to the contract is –

(i) the Reserve Bank of India, established under the Reserve Bank of India Act, 1934 (2 of 1934); or

(ii) a scheduled bank as defined in section 2(e) of the Reserve Bank of India Act, 1934, and which is duly authorised by the Reserve Bank of India to deal with or to transact in gold.

[F.No.16(2)/IT/99]
KAMAL KISHORE, Economic Adviser

In exercise of the powers conferred by section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (No.22 of 1992) read with Paragraph 1.3 of the Export and Import Policy, 1997-2002 (incorporating amendments made up to 31.3.1999), the Central Government hereby makes following amendments in the Export and Import Policy, 1997-2002 (incorporating amendment made up to 31.3.1999).

1. The following may be added at the end of paragraph 8.15 :

"A bank authorised by RBI is allowed export of gold scrap for refining and import in the form of standard gold bars."

This issues in public interest.

Sd/-

(N.L. Lakhanpal)
Director General of Foreign Trade and
Ex-officio Additional Secretary to the
Government of India

Copy to all concerned;
By Order etc;

Sd /-

( L.B. Singhal )
Jt. Director General of Foreign Trade

(F.No.01/92/180/00178/AMOO/PC-II)

New Delhi, the 21^st July 1999
30 ASADHA 1921 (SAKA)

G.S.R.544(E) - In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts standard gold bars falling under Chapter 71 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), when imported into India, by a bank authorised by the Reserve Bank of India (hereinafter referred to as the participating bank) from the whole of the duty of customs leviable thereon which is specified in the said First Schedule, and from the whole of the additional duty and special additional duty leviable thereon, respectively, under section 3 and section 3A of the said Customs Tariff Act, subject to the following conditions, namely :-

(i) that at the time of import, a certificate from an officer of the participating bank not below the rank of General Manager or equivalent thereof is produced to the effect that the said gold bars (in respect of description, quantity and technical specification) are imported under the Gold Deposit Scheme in exchange of scrap gold to be exported out of India; and that an undertaking is furnished by the participating bank to the Assistant Commissioner or Deputy Commissioner of Customs to the effect that –

1. the said gold bars shall be used in connection with the Gold Deposit Scheme, referred to in condition (i), in the manner authorised by the Reserve Bank of India; and
2. the participating bank shall pay, on demand, in the event of its failure to comply with clause (a), an amount equal to the difference between the duty leviable on such quantity of the said gold bars but for the exemption contained herein and that already paid at the time of importation.

(ii) that the Gold Deposit Scheme under which the exchange mentioned in condition (i) takes place shall have to be approved by the Reserve Bank of India.

Sd /-
(Rajendra Singh)
Under Secretary to the Government of India

F.No.495/8/99-Cus.VI

G.S.R.634(E) – The Central Government, with a view to bringing privately held stock of gold in circulation, reduce the country’s reliance on import of gold and providing its owners with some income apart from freeing them from the problems of storage, movement and security of gold in their possession, hereby notifies the Gold Deposit Scheme as announced in the Budget, 1999-2000.

1. Short title and commencement. –

2. Definition. – In this Scheme unless the context otherwise requires,

(i) Designated bank" means – a bank authorised by Reserve Bank to operate the scheme.

(ii) "Gold Certificate" means – the final receipt issued to a subscriber of the Scheme after the gold tendered by him has been assayed and accepted as deposit by a designated bank.

(iii) "Statement of Accounts" means a statement reflecting the Credit of Gold tendered by the depositor and its Debit, where such account is being maintained in a dematerialised form.

(iv) "Subscriber" means – a person resident in India, being –

1. an individual in his capacity as such individual or acting as guardian on behalf of a minor child,
2. more than one individual jointly,
3. a Hindu Undivided Family,
4. a Trust,
5. a Company,

who tender gold to a designated Bank under this Scheme.

(v) Pass Book means – a book issued by a bank reflecting the deposit of Gold tendered under the Scheme and its withdrawal.

(vi) All other words and expressions used in this scheme and not defined shall have the meaning assigned to it under the General Clauses Act, 1897.

1. Who can operate the Scheme. – All designated banks may operate the Scheme after getting the operational details approved by the Reserve Bank.
2. Form of Subscription. – The Gold shall be tendered by a Subscriber in the form of Bars, Coins and Gold Jewellery.
3. Procedure for making application for subscription of Gold. – (i) Every subscriber desirous of making subscription of Gold under the Scheme shall apply to a designated bank in such form as may be prescribed by the said bank.

(ii) After the Gold has been assayed, the designated bank shall accept the Gold and at the option of the subscriber shall issue – (a) a Gold Certificate or (b) a Statement of Account or (c) a Passbook to the subscriber.

4. Premature Payment. – Premature payment, either in the form of Gold or in Cash equivalent to the price of Gold on the date of encashment shall be allowed after initial lock in period.
5. Repayment and payment of interest. – (i) The Gold Certificate shall be repaid in Gold. Such repayment may also be made in rupee equivalent to the price of Gold as on the date of maturity at the option of the subscriber. The option in this regard will have to be exercised in the manner prescribed by the designated bank.

(ii) The designated bank shall pay interest at such rate and at such intervals as it may decide subject however, to the interest rate directive on Gold Deposit, issued by Reserve Bank.

6. Nomination facility. – The nomination facility shall be available on the lines of usual rupee deposit scheme prevalent in banks.
7. Transfer of Gold Certificate. – The Gold Certificate shall be transferable by endorsement and delivery.
8. Period of Scheme. – The Scheme shall remain in operation until further notice.

(F.No.1/1/CM/99)
Dr.J.BHAGWATI, Jt. Secretary.

1. With a view to mobilising a portion of the privately held stock of gold in the country and putting it to productive use, the Finance Minister had announced the introduction of a Gold Deposit Scheme in the budget for 1999-2000. The Scheme seeks to provide depositors the opportunity to earn interest on their idle gold holdings along with the benefits of safety and security of holding gold without any cost.

2. In pursuance of the above objective, the following enabling notifications have been issued by the Government:

1. Notification of the Gold Deposit scheme by Ministry of Finance vide Notification No. GSR. 634 (E) dated 14^th September, 1999.
2. Notification No. 12 (RE-99) 1997-2002 dated 4^th June, 1999 issued by Ministry of Commerce allowing a bank authorised by RBI to export gold scrap for refining and import in the form of standard gold bars.
3. Notification No. 97/99 – CUSTOMS dated 21^st July, 1999 issued by Ministry of Finance, exempting banks from import duty on gold brought into the country in exchange of scrap gold to be exported.
4. Notification No.S.O. 670 (E) dated 19^th August issued by Ministry of Food and Consumer Affairs exempting authorised banks entering into forward contracts in gold from the purview of the Forward Contract Regulation Act, 1952.

5. Exemption of interest earned on gold deposit bonds from Income tax vide amendment to Section 10(15)(vi) of Income-Tax Act by Finance Act, 1999.

Exemption of value of assets deposited in the scheme from Wealth Tax under Section 2(ea) of Wealth Tax Act, as amended by Finance Act, 1999.

Exemption from capital gains made on the bonds through trading or at redemption from Capital Gains Tax under Section 2(14)(vi) of Income Tax Act, as amended by Finance Act, 1999.

3. In order to facilitate the operation of the scheme, Reserve Bank of India has allowed banks:

(i) to hedge their price risk in OTC markets/international exchanges vide ECD A.D (M.A.Series) Circular No.28 dated October 5, 1999

(ii) Exemption from maintenance of CRR on gold deposits, except for the prescribed overall minimum of 3 %, vide circular DBOD.No.IBS.BC.96/23.67.001/ 99-2000 dated 5^th October 1999.

In the light of the above, guidelines for operation of the Scheme are as under:

4. Banks which have been authorised by RBI to deal in gold and have the required infrastructure for managing the scheme, expertise/experience in gold business and proper risk management systems may launch the Scheme. While the broad framework of the Scheme is set out below, each bank may devise a scheme in accordance with its own assessment of the market and build in features within the framework set out by these guidelines. To ensure wide reach for the scheme, banks which fulfil the above criteria but have limited branch network, may appoint other banks which have the necessary infrastructure for collection, storage and transportation of gold as collection agents only.

5. Instrument – Banks may either issue a passbook/statement of account or a certificate/bond to the depositors for deposit of gold, which will be transferable by endorsement and delivery.

6. Acceptance of Deposits - Gold (bars, coins, jewellery, etc.) will be accepted in scrap form only. There will be a preliminary assay to ascertain gold content/caratage in jewellery by a non-destructive technique such as X-Ray/karatmeter followed by a fool-proof method like fire assay. The depositor may be given the option to withdraw the tender depending on the results of the preliminary assay. If the option to withdraw is exercised, banks may consider levying a nominal charge to defray the cost of preliminary assay. For assaying, banks may enter into arrangements with existing units, or use the assaying infrastructure being jointly set up by the designated banks.

7. Entities eligible to subscribe – Resident Indians (Individuals, HUF, Trusts, Companies) may invest in the scheme. Joint tenders may be accepted and more than one certificate issued in the case of joint holders.

8. Issue of passbook/certificate – The banks should ensure to issue the passbook or certificate for deposit of gold to the depositor within 90 days from the date of receipt of gold. The passbook/certificate will indicate, inter alia, the name of the depositor/s, quantum of gold deposit in grams, the date of deposit, the date of maturity and the interest payable on the deposit.

9. Nomination facility may be allowed on the lines of the other usual rupee deposit schemes.

10. There will be an initial lock-in period which may be decided by the banks.

11. Individual banks will be free to fix the interest rates in tune with their own costing considerations. Interest will be payable in cash at fixed intervals or at maturity as decided by the bank.

12. The deposits may be made available within a maturity range from three to seven years. Delivery at maturity will be in standard gold bar form of .995 fineness or in rupees equivalent to the price of gold as on that date at the option of the depositor, to be exercised at the time of application or once during the tenure of the bonds.

13. Premature payment/encashment in cash equivalent to the price of gold as on the date of encashment or in gold would be allowed after the initial lock-in period. Banks may decide the penalty/swap cost to be levied on such withdrawals depending on the period for which the deposit has run.

14.Rupee loans may be given against collateral of gold deposits.

15.The operation of the Scheme will be open-ended, available on tap until further notice.

16. Export/import of gold scrap/refined gold collected by banks under the gold deposit scheme and exemption from Customs duty for export of scrap and reimport of refined gold is allowed to banks vide Government notifications as stated above. Banks have approval to make payment in foreign exchange for refining charges, including, for example, cost of insurance, transportation, etc. subject to Exchange Control regulations.

17. Banks may deploy gold mobilised under the scheme as under :

1. Gold loans to domestic jewellery industry
2. Gold loans to jewellery exporters
3. Outright sale of gold domestically
4. Sale of gold to other nominated banks.

Deployment as stated at (i) is permitted in respect of gold mobilised under the above scheme only. Banks may also grant such loans against the guarantee of other banks to enable customers of other banks to avail of such metal loans. Deployment as stated at (iii) and (iv) above are subject to compliance with gold open position limits approved by RBI. For approval of their open position limits in gold, banks may approach Department of Banking Operations and Development.

18. Banks would be required to put in place suitable risk management mechanisms to hedge the price risk arising out of gold price movements. Banks are permitted to enter into forward contracts in India for buying and selling of gold with only those banks which are authorised by RBI to import gold. Banks have been also allowed to access the International Exchanges, London Bullion Market Association or make use of Over-the-counter contracts to hedge exposures to bullion prices subject to the guidelines issued by the Exchange Control Department.

19. Banks would need to put in place suitable accounting systems, internal control and audit mechanisms and disclosure norms to cover all its operations in respect of gold including the Gold Deposit Scheme.

20. Banks are required to convert the liabilities and assets denominated in terms of gold into rupees for the purpose of compliance with reserve requirements/capital prescription requirements/balance sheet translation requirements. The conversion of gold into rupee may be done by crossing the London AM fixing for Gold/USD rate with the Rupee-dollar reference rate announced by RBI. The prevalent custom duty for import of gold will be added to the above value to arrive at the final value of gold.

21. Nominated banks will be exempted from maintaining CRR on liabilities under gold deposits mobilised in India. However, in view of multiple prescriptions banks have to maintain a minimum CRR of 3.0 per cent on total net demand and time liabilities (including zero CRR liabilities).

With regard to SLR, since there is an uniform prescription of 25.0 per cent on the total net demand and time liabilities which is the statutory minimum, the nominated banks have to maintain SLR of 25.0 per cent on liabilities under gold deposit scheme.

22. The tax regime is as stated at paragraph 2 (e), (f), and (g).

Details of the scheme designed, date from which it will be operational, and the branches from which it will be operated, may be advised by the banks proposing to introduce a gold deposit scheme to RBI for obtaining its approval. The concerned bank may apply to the Chief General Manager, Department of Banking Operations and Development, Reserve Bank of India, Centre I, World Trade Centre, Cuffe Parade, Mumbai 400005 for approval of the scheme which it will introduce on receipt of the authorisation from RBI.

RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI 400 001

October 5, 1999

A.D. (M.A.Series ) Circular No.28
To,
All Authorised Dealers in Foreign Exchange

Dear Sirs,

Attention of authorised dealers is invited to paragraph 3C.11 and Annexure II to Chapter 3 of Exchange Control Manual (ECM) containing guidelines for accessing international Commodity exchanges for hedging commodity price exposure.

2. It has been decided to allow authorised dealers who have been permitted by Reserve Bank to accept Gold under Gold Deposit Scheme to use Exchange-traded and over-the-counter hedging products available overseas to manage their price risk arising out of sale of gold. However, while using products involving options, authorised dealers may ensure that there is no net receipt of premium, either direct or implied.

3. Banks which are allowed to enter into forward Gold contracts in India in terms of the guidelines issued by the Department of banking Operations and Development(DBOD), are also allowed to cover their price risk by hedging abroad in the manner indicated above.

4. Following consequential amendments may be carried out in the Exchange Control

Manual. Volume I:

After paragraph 3 C.11 a new 3C.12 may be inserted as per the enclosed Slip.

5. Authorised dealers may bring the contents of this circular to the notice of their constituents.

6. The directions contained in this circular have been issued under section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non observance thereof is subject to the penalties prescribed under the Act.

Yours faithfully,

B.Maheshwaran

Chief General Manager

Slip
[AD/MA 28 /1999]

3C.12 Authorised dealers who have been permitted by Reserve Bank to accept Gold under Gold Deposit Scheme may use, to manage price risk, Exchange-traded and over-the-counter hedging products available overseas. However, while using products involving options, it may be ensured that there is no net receipt of premium, either direct or implied. Banks which are allowed to enter into forward Gold contracts in India in terms of the guidelines issued by the Department of Banking Operations and Development (DBOD), are also allowed to cover their price risk by hedging abroad in the manner indicated above.

October 5, 1999

IBS 912/23.67.001/99-2000

All Commercial Banks authorised
to deal in Gold

Dear Sir,

As you are aware, the Government of India announced in the budget for the year 1999-2000, the introduction of a Gold Deposit Scheme with a view to mobilising gold lying idle with the public and putting it to productive use. The necessary Notifications to facilitate introduction of the scheme by banks have since been issued by Government of India.

2. Guidelines on the Gold Deposit Scheme have been formulated by RBI to enable banks authorised to deal in gold to prepare their own Gold Deposit Schemes. A copy each of the guidelines, the notifications issued by the Government of India and the relevant circulars and directives issued by RBI are enclosed.

3. Authorised banks may formulate their own Gold Deposit Scheme on the basis of the guidelines and forward it to us for our authorisation indicating the date from which the scheme will be operational and the branches from which it will be operated.

4. Please acknowledge receipt.

Yours faithfully,

(A.Ghosh)
Chief General Manager

Encls: As above