Finance minister Arun Jaitley in Budget 2015 announced a new gold monetization scheme that will replace gold deposit and gold metal loan schemes, allowing deposits to earn interest in their metal accounts. It will also allow jewelers to obtain loans in their metal accounts.
George Alexander Muthoot, MD, Muthoot Finance says the present scheme of the government is not about deposit of jewelry, it is about converting it to gold bars and not many people will be interested in it as the making charge stands at anywhere between 25 percent and 30 percent. It is a good scheme for people who have invested in gold, he says.
According to him, if people deposit gold coins, this scheme will succeed.
Below is the verbatim transcript of George Alexander Muthoot's interview with CNBC-TV18\\'s Latha Venkatesh and Reema Tendulkar.
Latha: Will this scheme of gold deposits and gold loan work? Do you see Indians coming out and depositing their jewellery with banks?
A: The present scheme of what the government is doing is not deposit of jewellery, it is you have to deposit jewellery and probably convert it into gold bar. So, conversion of gold bar would be a challenge because people may not be very much keen to convert their jewellery into gold bar because the making charge today is anywhere between 10-30 percent. So people may not be interested to do that. But yes, people who have invested in gold who have got gold as gold bar or gold coin for them it is a very good scheme. It is better because they will get some interest maybe one or two percent, that is what the Finance Minister has said. That is a good investment scheme also especially today since the gold price is falling.
So, in that respect it is good and borrowing on gold yes, Muthoot has been really monetising all theseornaments, that is a strength of what Muthoot has been doing, monetising the gold ornaments which are lying and keeping it as gold ornaments and returning it as gold ornaments. That is a good thing of gold loan companies. So to me if people who have excess gold with them who are keeping it not as jewellery but as gold coins if they come and deposit with banks or whatever institutions government says this scheme will certainly succeed and using this gold instead of an import substitution for gold which is being imported today maybe 600-800 tonnes, if a part of it, maybe 50 percent of it can be recycled or used from the jewellery here it will make a tremendous impact on our balance of payments and we can utilise the 20,000 tonnes which are in the country. It needs a little bit of concept change; it needs a little bit
of change in the minds of the users of gold. With that it will be a success.
Reema: So, the gold monetization scheme which is announced in the Budget, can private sector participate in any form or fashion now or perhaps in the future and is there anything in the budget which can benefit a company like yours?
A: For a company like ours the benefit would be the sentiment of gold-what actually has happened is that today the negative sentiment about gold is fast changing. The last two year there has been such a lot of negative sentiments about gold, gold purchase, gold import and to some extent gold loans or gold loan companies also fell into that negative list but now that the government has just changed it’s feeling of gold or the negative impact of gold and gold jewellery, gold purchase etc is changing, the impact on gold loan companies also would be certainly positive.
Latha: There has also been a change in the non-convertible debentures (NCDs)rules from the Reserve Bank. You can now do a private placement with 200 investors, not 49 as well the minimum amount that each one can contribute is Rs 25 lakhs. Are you going to raise anyNCDs shortly since the rules look slightly easier?
A: Because but of course the number of accounts being restricted to 100. The maximum that can be reached even if it is just less than one crore would be two other crore only which would be quite insignificant or very little for us but there is one more rule there which says that anything above one crore there is no limit to the numbers. So, we can raise above one crore from as many people as we like, 1000-2000, so that is a very positive sign which the RBI has given and it will certainly help the Non-bank financial companies (NBFCs). The main thing today I see is the sarfaesi which is going to help the gold loan companies also because gold loan companies hitherto were not interested in other type of loan primarily because of the recovery aspect. Now that the sarfaesi is being given to companies with more than Rs 500 crore of assets, the god loan companies can certainly consider and enter into other forms of loans.
Latha: So, are you becoming an NBFC? You will be giving non –gold loans, is it?
A: It is not that we are going to change anything but the door is now open, the regulations are very positive for companies to consider other forms of loans especially loan against property, loan against houses and housing can be done directly in this company also since this sarfaesi has come. So, we will wait for the fine print to come and then probably take a decision of that.