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The government has decided to discontinue medium-term and long-term deposits under the Gold Monetisation Scheme (GMS) from Wednesday citing evolving market conditions and performance of the scheme, the Ministry of Finance said in a statement on Tuesday. Short-term bank deposits by banks under GMS will continue at the discretion of individual banks based on the commercial viability as assessed by them, it said.
Detailed guidelines will be released by the Reserve Bank of India on this issue.
The Gold Monetisation Scheme, a revamped version of an older Gold Deposit Scheme, was launched in November 2015 to make idle gold productive, by getting consumers to either sell their gold or store it with banks, so it could merge into the formal economy and reduce the country’s gold imports and thus, reduce the current account deficit.
The GMS consisted of three components: (1) Short Term Bank Deposit (1-3 years); (2) Medium Term Government Deposit (5-7 years); and (3) Long-Term Government Deposit (12-15 years).
The Finance Ministry said any gold deposits tendered at the designated collection and purity testing centre or GMS mobilisation, collection & testing agent (GMCTA) or the designated bank branches will not be accepted with effect from March 26. However, the existing deposits will continue till redemption.
This is the second gold scheme to face closure by the government in recent months amid a spike in gold prices. The government has also discontinued issuance of sovereign gold bonds. Under the Gold Monetisation Scheme, gold bonds were issued in denominations of 5 grams, 10 grams, 50 grams and 100 grams for a term of 5-7 years with a rate of interest to be calculated on the value of the metal at the time of investment. The scheme had an annual cap of 500 grams per person.
The amount of interest rate payable for short-term deposits under the scheme is decided by the banks on the basis of the prevailing international lease rates, other costs, market conditions etc. and is borne by the banks. For the medium and long-term deposits, the rate of interest was decided by the government, in consultation with the RBI and borne by the central government. It was fixed at 2.25 per cent for medium term bonds and at 2.5 per cent for the long term bonds.
