PANAJI: Indian lenders do not want to raise interest on gold deposits much beyond 1 per cent, bankers said, which could derail a government plan to cut massive imports by mobilising tonnes of gold now stored in households and temples.

Prime Minister Narendra Modi’s government is expected to launch a scheme this year to lure into circulation some of the 20,000 tonnes of idle gold, melting it down and lending it to jewellers, to feed Indians’ ravenous appetite for the metal.

Huge gold imports were blamed for pushing the current account deficit to a record $190 billion in 2013, prompting the government to hike its duty on imports to 10pc, an all-time high.

In 1999, a similar gold monetisation plan proved ineffective, partly because of low interest rates, and bankers fear a repeat unless the government funds lenders to implement the programme.

“We can’t give more than 0.75pc interest,” said Neerja Nigam, deputy general manager of precious metals at State Bank of India, the country’s biggest lender by assets.

“We have asked the government to give us some incentives,” she said on Saturday on the sidelines of the International Gold Convention in Panaji, capital of the western state of Goa.

In May, New Delhi proposed that banks treat gold deposits as part of their cash reserve ratio (CRR), the share of deposits they are compelled to keep with the central bank, or the statutory liquidity ratio (SLR), the minimum amount of bonds they must hold.

But the government dropped the conditions after the Reserve Bank of India expressed fears that banks might hoard gold.

Published in Dawn, August 23rd, 2015

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