Government drops plan to use gold deposits as part of CRR, SLR

Monday, 10 August,Mumbai: The government has dropped plans to utilise gold mobilised under the proposed monetisation scheme for meeting mandatory liquidity requirements for banks, as it wants to avoid another confrontation with RBI.

Government dropped plan to use gold deposits as part of CRR, SLR in gold monetisation scheme because of opposition from RBI, sources said.

The Gold Monetisation Scheme is expected to be launched by the first week of September and the Cabinet approval for the same is expected in a couple of weeks, sources said.

“RBI had argued against using gold deposits as CRR and said the move will weaken CRR as a monetary policy tool. The government does not want to open to many fronts with RBI,” sources said.

Among others, the government and the RBI had differed on issues related to the proposed monetary policy committee for setting interest rates, although the differences are believe to have sorted out now.

The Cash Reserve Ratio (CRR) is the portion of the total deposits, which has to be kept with RBI in cash, while Statutory Liquidity Ratio (SLR) is the portion of deposit compulsorily parked in government securities.

“To incentivise banks, it is proposed that they may be permitted to deposit the mobilised gold as part of their CRR/SLR requirements with RBI. This aspect is still under examination,” the draft guidelines on Gold Monetisation Scheme issued in May had said.

CRR is at 4% while SLR is at 21.5%. So, 25.5% of the cash deposit mobilised by banks are locked in these two statutory ratios.

If gold mobilised through scheme is allowed to meet CRR/SLR requirements, the value of the metal will be considered as deposits for meeting the reserve ratios.