RBI needs to stop jewellers from cheating Indians with gold schemes

Indians losing due to the wiles and guiles of jewellers in India is as ubiquitous and commonplace as cyber crime in Nigeria. The customer is short changed on all fronts—weight, rate and purity with wastage charges being the icing on the cake for the wily jeweller.

In South India, particularly at Usman Road Chennai, jewellers are now enticing wannabe buyers with a deposit scheme in which a customer is credited gold and not the money you deposit. For example: If you deposit Rs 5,000 today and today’s rate is Rs 2,500 per gram, you are credited with 2 grams of gold. In other words, the credit given is gold at the prevailing market rate.

An analogy with systematic investment plans (SIP) of mutual funds is in order. If you commit to invest Rs 5,000 every month, the number of units you get depends upon the Net Asset Value (NAV) of the units of the scheme on the date of deposit.

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Suppose in the first month, the NAV is Rs 20 then you are allotted 250 units but if in the second month the NAV rises to Rs 25 per unit then you get only 200 units and so on. The Usman Road jeweller does pretty much the same. Well what is wrong with that you might ask.

Nothing apparently, except that while mutual funds are well regulated by the market regulator SEBI, jewelers are the monarchs of all they survey. You must entrust your precious money to an industry or sector that has a credible regulator.

Banks are regulated by the Reserve Bank of India (RBI) just as mutual funds are by SEBI. The RBI must take urgent steps to wean away the gullible public from jewellers to banks because they can be taken for a royal ride by the jewellers. Under the Gold deposit scheme 1999, revitalized by the RBI in 2009, interest is payable on gold deposits in gold terms and not in rupee terms.

Thus if you have in your credit 500 grams and the interest rate is 1 per cent per annum, at the end of the year 5 grams of gold would be credited to your account. For good measure the scheme provides rupee option for the depositor at the time of maturity. Itinevitably means the credit balance of gold will have to be monetized based on the London gold rate at the appointed times, duly converted into Indian rupees, admittedly a complicated process. If jewellers give this option to the depositors as many of them do, then they have one more avenue now to short change them.

While jewellers should not be banned from offering such schemes, the RBI must do everything in its power to wean customers away and bring them into banks’ fold. Banks are already into the business of gold. In gold deposit scheme, which is admittedly not at all popular, one hands over her gold to the bank which gets it assayed for purity and gives you a certificate of deposit.

They are also into the business of gold loans which means giving loans on the security of gold and jewelry. What we are talking about is neither of these two but a unique product—growing a gold tree as it were. You buy a sapling, so to speak, with Rs 5,000 and get two grams as adumbrated in the above example. The sapling grows into a tree as you keep on accumulating gold every month or at other periodic intervals.

One hopes the RBI takes urgent steps not only to protect depositors from being short changed with trickery at every step but more importantly to prevent depositors losing their precious savings, which is a distinct possibility if the jewellers decamp and bolt away. The RBI must ensure that jewellers concentrate on their core expertise—making jewellery. Financial transactions in gold should come under the remit of the well regulated banking sector.