Portfolio

Will you lend your gold to a bank?

Rajalakshmi Nirmal | Updated on January 24, 2018 Published on March 29, 2015

The Budget proposes to monetise the estimated 20,000 tonnes of gold lying with Indian households. Banks will now be allowed to take gold and pay interest on its value. At the end of the deposit term, the gold will be returned — not in the same form but as a bar. Rajalakshmi Nirmal checks out whether women are interested

Give back the gold as ornament

Niharika Reddy, a home-maker, has a six-year-old daughter. She says she prefers to save in equity or real estate for her daughter rather than buying gold. Asked if she would give her gold to this new scheme, she says she would, provided banks offer good interest. “If the deposit will give me at least 3.5-4 per cent interest compounded annually, I would go for it.”

Given that the existing gold deposit schemes give only 1 per cent interest on deposits of three years or more, it needs to be seen how much interest banks will offer on the new scheme.

Niharika says she would, however, give only the gold coins she has and not the ornaments. “I would give only the coins. I have four-five waistbands, all inherited, but if I melt them, it is pointless, because they are studded and quite intricately designed.” The scheme, she says, should give an option to redeem the gold either in the form given or as a bar.

“They could give a lower interest for ornaments and a higher rate for those willing to take it as coins or bars. If I am going to get something on my ornaments without their being melted, it will definitely be attractive. Rather than letting it lie in a locker, I can give it to the bank.”

Not too sold on scheme

Radhika Mundra, a college student from Jodhpur, says she is not enthused by the scheme. “I might have considered it if I could have received my jewellery back. The making charges on jewellery are very high, which the interest cannot compensate. So, as a rational customer, I wouldn’t sign up for the scheme. But if I have some old jewellery which I am not planning to use, I might consider putting it up. I won’t mind receiving gold bars in return as this old jewellery is just sitting in my locker.”

Making charges on jewellery vary from 5 to above 15 per cent. So, if interest on the new gold deposit scheme is low, it will fail an individual’s cost-benefit test.

Adding glitter to marriages

Now, will the fact that the jewellery taken is melted and at maturity given to the depositor as bar be a dampener for anyone looking at the scheme? No, says Radhika. “The only reason I would be willing to keep my old jewellery would be its sentimental value. Gold prices are rising every day. It wouldn’t be affordable for everyone to purchase new gold or every piece of jewellery they want, so, it has always been the practice to melt out-dated jewellery and use it to create new pieces. So, either way, it loses its original form.”

While there is a strong perception that women have moved to light-weight artificial jewellery, Radhika does not conform to this trend. “Though I am not an accessories person, I prefer wearing gold jewellery at marriages and other family functions. Gold is the soul of Indian marriages. Gold enhances the beauty of a woman. It completes her. It gives her an unmeasured confidence.”

My preference is a one-year deposit

Kumary Mathew, a home-maker from Chennai, says she would give her gold to the scheme. “I will give my ornaments but not everything. I will give those that I don’t use, may be the chains and the coins I have. The gold that I keep as investment, I will give that to the bank…”

How much interest does she expect? “It should be close to at least what the savings bank accounts offer now. Currently, gold deposit schemes give only 0.75 per cent interest. If I am giving my gold to an investment scheme, I will expect some return and 0.75 per cent is too less,” she responds.

If there is going to be paper work that has to be done to open this deposit account, Kumary Mathew says it will not put her off. “It is an investment and when you are making an investment you should be ready to answer questions. I don’t mind answering any questions the bank will ask me for this deposit…”

But, the scheme should be for a shorter tenure, she adds. “I would not want to give away my gold if it is going to be locked in for five years or more. I would be willing if it’s a one-year deposit. They can, may be, reduce the rate a little bit on shorter tenure deposits…”

I don’t want my jewellery melted

Kavitha Divakar, a lawyer by profession, is not an ornaments person who flaunts her gold.

She says, “If I had gold bars I would be interested because I think it is safer with them than with me. But all that I have is in ornament form, inherited from my grandmother and mother. It is antique and I want to retain it in its original form.”

Since the government’s agenda is to use the gold mobilised from households to lend it to jewellers who would otherwise be importing gold, it is doubtful if the scheme will give the option of getting the jewellery back in the same form.

Kavitha, however, is willing to give gold bars if she had them after reading the fine print of the scheme.

“I would look at the terms of the scheme in totality. It should be run by a credible financial institution and it should be regulated to ensure purity of gold when they return it at the end of the deposit term.”

On the interest she expects, Kavitha says, “I won’t be greedy. I know my gold is seeing capital appreciation, so if it gives me about 3-5 per cent interest, I will be happy.”

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