Union financial services secretary GS Sandhu on Saturday said the government is actively looking into the issue of monetising gold following representations from the banking sector. Earlier, banks led by State Bank of India pitched for considering gold deposits as part of cash reserve ratio (CRR) at a banking conference here.
Sandhu stressed the need to monetise gold held by the public to help reduce imports of the yellow metal, which can be a drain on the nation’s foreign-exchange resources and lead to a wider current account deficit (CAD).
“So much gold is lying idle. In some ways if we can monetise this, may be our imports will come down drastically. Something in that direction we will have to think of,” Sandhu said at an event organised by the Gems & Jewellery Export Promotion Council.
State Bank of India and Bank of Baroda pleaded for treating a portion of their gold deposits as part of the mandatory CRR or statutory liquidity ratio (SLR), both of which banks consider as non-productive. “Is it possible that the regulator can treat a little bit of our gold deposits as CRR or SLR? After all, gold is also a store of value,” SBI chairman Arundhati Bhattacharya said at the event.
With gold imports having pressurised the current account gap in the recent past, there is a greater need to make use of gold available in the country and make it more liquid, she said.
Bhattacharya added that SBI is the largest player in the gold deposit scheme segment and is struggling to deploy the entire deposits in productive assets. “We also find that we are not able to deploy the entire gold that we get. There is really no incentive for us to go ahead and get more of these deposits now so as to make gold more liquid.”
CRR, at 4 per cent now, is the portion of deposits parked by banks with the Reserve Bank of India that earns no interest, while SLR, at 22.5 per cent, is the amount of deposits to be mandatorily invested in recognised securities such as government bonds and other liquid assets. However, the average SLR holding in the system is 27 per cent as banks make treasury play a source of boosting bottom lines when there is poor growth in advances or when bad loans rise.
Concurring with Bhattacharya, Bank of Baroda chairman and managing director SS Mundra said it “makes sense” to treat a part of banks’ gold deposits as CRR and SLR.
“When banks are holding gold, it is of value. I think it makes sense to bring under CRR/SLR. It also fits the larger pattern that ultimately we are talking about unearthing the gold and bringing it to productive sectors in the economy as a whole. The gold that is readily available can be brought under recognition,” Mundra told reporters.
On the forthcoming Budget, Sandhu said, “The basic theme is to have a high growth rate. All the departments and all ministries are working on one single theme, which is to bring high growth rate in the economy.”