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GOLD BANKING

GOLD DEPOSIT SCHEMES:RBI COLLATERAL RULES

Advocate Iranpreet Singh
February 18, 2025
20 min read

Gold deposit schemes and RBI regulations for using gold as collateral provide structured frameworks for gold monetization and banking. This comprehensive guide covers gold monetization schemes, collateral valuation, compliance requirements, and legal considerations.

TABLE OF CONTENTS

SCHEME OVERVIEW

GOLD DEPOSIT SCHEMES OVERVIEW

Gold deposit schemes enable individuals and institutions to deposit their idle gold with banks and earn returns, while banks can utilize this gold for lending and other productive purposes, creating a win-win ecosystem for gold monetization.

Key Concepts

Gold Monetization Scheme (GMS): Government scheme allowing gold deposits to earn interest
Gold as Collateral: Using gold ornaments/bars as security for loans
Gold Loan: Secured lending against gold collateral
Hallmarking: Quality certification for gold purity verification

Scheme Benefits

Monetization of idle gold assets

Earning returns on gold holdings

Economic Impact

Reduction in gold imports

Enhanced financial inclusion

GOLD MONETIZATION

GOLD MONETIZATION SCHEME (GMS)

Gold Monetization Scheme Framework

Scheme Structure

  • • Short-term deposits (1-3 years)
  • • Medium-term deposits (5-7 years)
  • • Long-term deposits (12-15 years)
  • • Interest rates: 2.25% to 2.50% p.a.

Eligible Depositors

  • • Resident individuals
  • • Hindu Undivided Families (HUFs)
  • • Trusts and institutions
  • • Central/State governments

Minimum Deposit

  • • Raw gold: 30 grams
  • • Gold jewelry: 30 grams
  • • Gold bars/coins: 30 grams
  • • No maximum limit specified

Gold Quality

  • • Minimum purity: 995 fineness
  • • Hallmarked gold preferred
  • • BIS certification required
  • • Third-party assaying mandatory

GMS Process Flow

1
Application Submission

Submit application with required documents to designated bank

2
Gold Deposit

Deposit gold at designated collection center

3
Purity Testing

Third-party assaying for purity verification

4
Deposit Confirmation

Issue of Gold Deposit Receipt (GDR)

5
Interest Payment

Regular interest payments as per scheme terms

GMS Benefits & Features

For Depositors

  • • Earn interest on idle gold
  • • No storage and insurance costs
  • • Capital gains tax exemption
  • • Flexible redemption options

For Banks

  • • Low-cost funding source
  • • Gold lending opportunities
  • • Diversified asset portfolio
  • • Reduced operational costs

For Economy

  • • Reduced gold imports
  • • Current account deficit improvement
  • • Enhanced financial inclusion
  • • Productive utilization of gold
RBI REGULATIONS

RBI REGULATORY FRAMEWORK

RBI Guidelines for Gold Banking

Authorized Entities

  • • Scheduled commercial banks
  • • Small finance banks
  • • Regional rural banks
  • • Cooperative banks (with approval)

Operational Guidelines

  • • Board-approved policy required
  • • Dedicated gold loan policy
  • • Risk management framework
  • • Regular monitoring systems

Prudential Norms

  • • LTV ratio: Maximum 75%
  • • Risk weight: 50% for gold loans
  • • Provisioning as per asset classification
  • • Exposure limits compliance

Compliance Requirements

  • • KYC and AML compliance
  • • Regular reporting to RBI
  • • Audit and inspection readiness
  • • Customer grievance mechanism

Gold Loan Specific Regulations

Loan-to-Value (LTV) Norms

  • • Maximum LTV: 75% of gold value
  • • Valuation based on current market rates
  • • Regular revaluation requirements
  • • Margin call provisions

Interest Rate Guidelines

  • • No interest rate ceiling
  • • Transparent pricing policy
  • • Fair practices code compliance
  • • Customer disclosure requirements

Auction and Sale Norms

  • • Minimum notice period: 30 days
  • • Transparent auction process
  • • Surplus amount refund
  • • Customer notification requirements
COLLATERAL FRAMEWORK

GOLD AS COLLATERAL FRAMEWORK

Acceptable Gold Collateral Types

Gold Jewelry

  • • Minimum purity: 18 karat (750 fineness)
  • • Hallmarked jewelry preferred
  • • Traditional and modern designs
  • • Proper documentation required

Gold Bars & Coins

  • • Minimum purity: 995 fineness
  • • BIS hallmarked bars/coins
  • • Recognized mint certification
  • • Proper weight verification

Exclusions

  • • Gold-plated items
  • • Antique jewelry (case-by-case)
  • • Damaged or broken items
  • • Items with precious stones

Documentation

  • • Purchase receipts/invoices
  • • Hallmark certificates
  • • Ownership proof
  • • Identity verification

Security & Storage Framework

Storage Requirements

  • • Bank-approved strong rooms
  • • 24x7 security surveillance
  • • Fire and theft insurance
  • • Regular security audits

Custody Procedures

  • • Dual control access systems
  • • Individual item identification
  • • Regular physical verification
  • • Detailed custody records

Insurance Coverage

  • • Comprehensive insurance policy
  • • Coverage for full market value
  • • Third-party insurance providers
  • • Regular policy renewals

Collateral Management Process

Acceptance Process

  • • Physical verification and weighing
  • • Purity testing and certification
  • • Market valuation assessment
  • • Documentation and registration

Monitoring & Review

  • • Regular market value updates
  • • LTV ratio monitoring
  • • Margin call procedures
  • • Periodic physical verification
VALUATION PROCESS

GOLD VALUATION METHODOLOGY

Gold Valuation Methods

Market-Based Valuation

  • • Current market price reference
  • • London Bullion Market rates
  • • Multi Commodity Exchange (MCX) rates
  • • Daily price updates

Purity Assessment

  • • Electronic gold testing machines
  • • Acid testing methods
  • • X-ray fluorescence (XRF) testing
  • • Fire assay for precise measurement

Weight Verification

  • • Calibrated digital scales
  • • Gross and net weight calculation
  • • Stone and other material deduction
  • • Standardized measurement units

Valuation Formula & Calculation

Standard Valuation Formula

Gold Value = (Net Weight × Purity %) × Current Market Rate × Discount Factor

Calculation Components

  • • Net Weight: After stone deduction
  • • Purity %: Karat-based percentage
  • • Market Rate: Current gold price
  • • Discount Factor: Risk adjustment

Valuation Frequency

  • • Daily rate updates
  • • Weekly revaluation for loans
  • • Monthly comprehensive review
  • • Event-driven revaluation

Quality Standards & Certification

BIS Hallmarking

  • • Bureau of Indian Standards certification
  • • Mandatory for gold jewelry (14K and above)
  • • Unique identification number
  • • Assaying and hallmarking centers

International Standards

  • • London Bullion Market Association (LBMA)
  • • Good Delivery standards
  • • ISO certification requirements
  • • International purity standards
COMPLIANCE REQUIREMENTS

COMPLIANCE & REGULATORY REQUIREMENTS

KYC & AML Compliance

Customer Due Diligence

  • • Identity verification documents
  • • Address proof requirements
  • • PAN card mandatory
  • • Beneficial ownership identification

Transaction Monitoring

  • • Suspicious transaction reporting
  • • Cash transaction reporting (CTR)
  • • High-value transaction monitoring
  • • Regular transaction pattern analysis

Record Keeping

  • • Minimum 5-year record retention
  • • Digital record maintenance
  • • Audit trail requirements
  • • Regulatory inspection readiness

Reporting Obligations

  • • Monthly return submissions
  • • Annual compliance certificates
  • • Incident reporting requirements
  • • Regulatory query responses

Operational Compliance Framework

Policy Framework

  • • Board-approved gold loan policy
  • • Risk management procedures
  • • Operational guidelines
  • • Staff training programs

Internal Controls

  • • Segregation of duties
  • • Dual authorization requirements
  • • Regular internal audits
  • • Exception reporting systems

Customer Protection

  • • Fair practices code compliance
  • • Transparent pricing disclosure
  • • Grievance redressal mechanism
  • • Customer education initiatives
RISK MANAGEMENT

RISK MANAGEMENT FRAMEWORK

Key Risk Categories

Market Risk

  • • Gold price volatility
  • • Currency fluctuation impact
  • • Interest rate risk
  • • Liquidity risk in gold markets

Credit Risk

  • • Borrower default risk
  • • Collateral adequacy risk
  • • Concentration risk
  • • Recovery risk

Operational Risk

  • • Storage and custody risk
  • • Theft and fraud risk
  • • Valuation errors
  • • Process failures

Risk Mitigation Strategies

Market Risk Mitigation

  • ☐ Regular revaluation of collateral
  • ☐ Conservative LTV ratios
  • ☐ Margin call mechanisms
  • ☐ Hedging strategies

Credit Risk Mitigation

  • ☐ Robust credit assessment
  • ☐ Diversified portfolio
  • ☐ Regular monitoring
  • ☐ Early warning systems

Operational Risk Mitigation

  • ☐ Comprehensive insurance coverage
  • ☐ Secure storage facilities
  • ☐ Regular security audits
  • ☐ Staff training programs

Regulatory Risk Mitigation

  • ☐ Compliance monitoring systems
  • ☐ Regular policy updates
  • ☐ Legal advisory support
  • ☐ Regulatory relationship management
PRACTICAL GUIDANCE

EXPERT GUIDANCE & SUPPORT

Best Practices for Gold Banking

For Banks

  • ☐ Develop comprehensive gold loan policy
  • ☐ Implement robust valuation systems
  • ☐ Establish secure storage facilities
  • ☐ Train staff on gold banking procedures

For Customers

  • ☐ Ensure proper documentation
  • ☐ Understand terms and conditions
  • ☐ Maintain hallmarked gold
  • ☐ Keep purchase receipts safe

Regulatory Compliance

  • ☐ Regular compliance audits
  • ☐ Staff training programs
  • ☐ Updated policy frameworks
  • ☐ Regulatory relationship management

Risk Management

  • ☐ Regular risk assessments
  • ☐ Adequate insurance coverage
  • ☐ Market monitoring systems
  • ☐ Contingency planning

GET PROFESSIONAL ASSISTANCE

Gold Banking Legal Advisory
Expert legal guidance on gold deposit schemes and regulatory compliance
RBI Compliance Support
Comprehensive support for RBI gold banking regulations and guidelines
Gold Loan Documentation
Legal documentation and agreement drafting for gold-based transactions
Dispute Resolution
Legal representation in gold banking disputes and recovery proceedings
Contact Advocate Iranpreet Singh
Expert Gold Banking & Financial Regulation Services
📞+91-XXXXX-XXXXX
📧contact@iranpreetsingh.com
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