Indian Banks not Keen on Modi’s Gold Monetization Plan

A proposal in India to attract thousands of tonnes of gold owned by households into a bank deposit scheme will likely fail in its current form as it does not address some key concerns for banks and consumers.

Support from banks would be crucial for the success of the monetisation plan. Deposit schemes, similar to the one proposed on Tuesday by the Narendra Modi-led government, have previously failed as the incentives offered were not profitable for banks.

The idea is to attract gold lying idle among Indian homes into the banking system. This amounts to an estimated 20,000 tonnes of gold – or almost seven times global annual output.

Banks would be allowed to treat the deposits as part of their reserves – boosting their balance sheets. In turn, the metal would be refined and sold to meet demand in the world’s top consumer, reducing the country’s need for imports. Gold is the second-biggest expense after oil on India’s import bill.

But bank officials expressed caution about the proposed gold monetisation scheme, saying it would not cover the costs of the deposit plan and that the government would have to give subsidies to encourage their participation.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza