It's all in the Interest Rate, Honey

Published: 20th May 2015 06:00 AM  |   Last Updated: 20th May 2015 06:00 AM   |  A+A-

KOCHI: The gold deposit scheme, which failed miserably when introduced in 1999 for the first time, will take off in the new avatar only if the interest rate offered at least beats the inflation rate, say experts.

coin.jpgHowever, compared to some 10-15 years back, there is less sentimental value for gold jewellery and a better rate of interest for gold deposited at the metal accounts with banks can make the scheme a success, they say.

“Last time the gold deposit scheme did not take off because the interest on offer was just 1-1.5 per cent. The rate of interest should at least cover inflation,” said K P Padmakumar, executive director, Muthoot Finance, a leading gold loan company.

This means, for the scheme to succeed, the banks should offer about 5-6 per cent returns for the scheme.

V P Nandakumar, MD & CEO of Manappuram Finance, said the new scheme should offer rate of interest on a par with interest rates on foreign currency deposits, which is about 5 per cent.

Further, at the moment, the scheme is not open to NBFCs. “A large chunk of gold is with rural and semi-urban households. Only NBFCs have the reach and penetration to tap these assets. The scheme should be open to NBFCs with stipulations,” he said. Sentimental value for gold ornaments, except may be for legacy ornaments, is less, and hence the scheme can succeed given that the interest earned from the monetisation scheme will be exempt from income tax, wealth tax and capital gains tax to make it attractive for households, he said.

For instance, in 2014-15 alone, Muthoot Finance auctioned Rs 2,800 crore worth of gold, after borrowers chose to default on their loans and did not bother to take back the ornaments. At last count, three Kerala gold loan companies - Muthoot Finance, Manappuram Finance and Muthoot Fincorp - hold nearly 200 tonnes of gold jewellery.


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on are those of the comment writers alone. They do not represent the views or opinions of or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp