Banks to get commission for unlocking household gold

Similar programmes in the past have failed as they were not profitable for the banks

The Indian government will pay banks a 2.5 percent commission to unlock the country's massive stash of gold under a new monetisation scheme, the central bank said, as the ambitious plan received a poor response from banks and customers.

Prime Minister Narendra Modi launched the Gold Monetisation Scheme on November 5 to lure an estimated 20,000 tonnes of gold hoarded in households and temples into the banking system and trim the import bill of the world's second biggest gold consumer after China.

But only a few kilograms trickled in over the last two months as banks showed little interest in popularising the scheme because of negligible returns for them.

Now the government has decided to pay the participating banks a total commission of 2.5 percent, including 1.5 percent handling charges, for the first year, the Reserve Bank of India said in a statement late on Thursday.

Support from banks is crucial to the success of the scheme. Similar programmes in the past have failed as they were not profitable for the banks.

Under the current scheme, Indians are encouraged to deposit jewellery, bars or coins with banks so it can be refined to meet fresh demand and cut the need for imports.

Banks, however, were saying they could not offer attractive rates unless the government compensated them for the loss from higher rates.

"The 2.5 percent commission will make the scheme attractive for banks even after offering a decent interest rate to customers," said a Mumbai-based bullion dealer with a private bank.