Gold Bank needs to be established in India to monetise physical gold: R Gandhi

Gold Bank needs to be established in India to monetise physical gold: R Gandhi

The Reserve Bank of India's former deputy governor R Gandhi said on Wednesday that there was a need to establish a bank in the country to help monetise physical lying with people.

He said that the country needs to play along with the Indian psyche of the strong preference for physical and gold in the form of jewellery if it wants to be successful in monetising gold for the betterment of the economy.

He said that around 23,000 -- 24,000 tonnes of gold are found in the households and religious institutions in India but it is not easy to change the psyche of the people.

The idea of a gold bank that will accept gold deposits exclusively or predominantly will be rediscovered, according to a virtual event organized by digital lending fintech firm Rupeek on 'Tech Disruption meets Gold Monetisation'.

He said that emerging economies like India need to have a lot of capital for ushering in high growth, which will lead to higher standards of living for its population.

A regulatory facilitation and enablement in terms of bank licensing policy, its cash reserve ratio and statutory liquidity ratio in terms of gold will be needed to set up the gold bank.

The gold bank will act as a catalyst and market maker to monetise physical gold.

Gandhi said that there has been a shift towards gold in the country, including by encouraging the public to invest in financial gold rather than physical gold, as well as establishing infrastructure for quality control of gold through licensed refineries and hallmarking.

Gold deposits, gold metal loans and gold ETF exchange-traded fund Gold bonds and gold ETF schemes are intended to shift the public's preference to physical gold into financial gold, and gold deposits have the potential to monetise existing gold holdings, he said.

These products can be used to channel public savings into investment and capital formation by linking them to the common gold prices and the increasing awareness and marketing programmes, as well as by linking these products to the prevalent gold prices, Gandhi noted.

He said there are challenges in shifting people away from physical gold as it is not easy to make deep inroads into the psyche of the public.

Gandhi said efforts should be made to know the reason for people's preference for gold jewellery.

Gold jewellery deposit scheme products, promising the same type or different type of jewellery against gold jewellery deposited today after the tenor of say 10 or longer years, can mobilise and monetise existing gold, he said.

Gandhi noted that a long-term mission should be to move the public from holding physical gold to holding financial gold.

The former RBI deputy governor said that every rupee saved by households in the form of gold should be used to invest as capital through gold monetisation. He said that it will reduce the need for the import of capital from foreign countries.