Gold scheme gains faith of temple trusts

Gold scheme gains faith of temple trusts

Ahmedabad : India’s richest temples are among the biggest repositories of gold by way of offerings from devotees. For the most part, the bullion lies in securely guarded vaults, its value rising along with the rocketing market price. Now the temples have a way of making this value appreciation work for them.

The gold deposit scheme (GDS) run by some state-run banks is becoming increasingly popular with temple trusts such as the Tirumala Tirupati Devasthanams in Andhra Pradesh, and the Shri Arasuri Ambaji Mata Devasthan Trust and the Anandji Kalyanji Trust in Gujarat.

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The lenders offering the gold investment scheme include State Bank of India (SBI), Corporation Bank and Canara Bank. Under the scheme, customers have to deposit a minimum of 500g of gold for a period of three-five years with a minimum lock-in period of one year. The mint in Mumbai melts the metal and converts it into gold bars that are sold by the banks in the open market.

“We deposited a portion of our gold reserves in 2010-11 in SBI’s GDS as the gold used to lie idle in our vaults while this scheme offers many tax benefits," said T. Ravi, public relations officer at Tirumala Tirupati Devasthanams. “We are also considering depositing more gold in the future as the price outlook is good and we can save on taxes." He did not disclose how much gold the trust will deposit and when.

SBI’s GDS pays 1% interest on deposits of three years, 1.25% for four years and 1.5% for five years. It also offers other benefits—exemption from wealth tax, that on interest earned and on capital gains arising from the gold price having increased at the end of the deposit’s maturity period.

The temples get interest in the form of gold and can choose to get the same amount of the metal deposited or its cash equivalent on maturity. Banks for their part gain access to instant liquidity that they can deploy in their business.

The scheme’s popularity indicates that investors have faith in the sustainability of gold prices in the long term despite the recent easing, after having climbed to an all-time high in the last week of April, analysts said.

On 30 April, the June gold contract hit an all-time high of 22,856 per 10g in intraday trade before closing at 22,820 on the Multi Commodity Exchange of India Ltd (MCX). On 6 May, the June contract registered an intraday high of 21,875 per 10g and closed at 21,846.

On Monday, spot gold for Ahmedabad on MCX was 21,980 per 10g, down 3.2% from an all-time high of 22,715 on 30 April but up 6.4% from the beginning of 2011.

“The downward corrections in gold prices have reduced in the last three years to maximum 10-15%. Before that, there used to be sharper corrections," said Reneisha Chainani, research manager at Edelweiss Comtrade Ltd. “This has increased the faith of long-term investors in the sustainability of gold prices."

Also, the global gold price is seen at $2,000 ( 89,400 today) per ounce (28.35g) in a year’s time, 25% higher than current rates and translating into 28,000 per 10g at current foreign exchange rates, she said. “A long-term depositor would not like to lose these benefits and pay a 0.5% penalty (if deposits are withdrawn before maturity) and let go of tax benefits in order to make quick money."

In the year to March, Tirumala Tirupati Devasthanams made the largest deposit under the scheme.

“We’ve collected over six tonnes (6,000kg) of gold from all over under this scheme since it was launched on 16 March 2009, until Wednesday (4 May)," a senior official of SBI’s bullion branch in Mumbai said, requesting anonymity. “Of this, 3,250kg gold was deposited in 2010-11. Andhra Pradesh contributed the most gold in 2010-11, with 2,250kg of gold deposited by Tirumala Tirupati Devasthanams Trust."

The bullion branch is responsible for sending all the gold collected from branches across the country to the Mumbai mint, where it is refined and melted.

Inquiries from potential investors have been rising ever since gold prices began climbing, the official said.

Given that SBI is authorized by the Reserve Bank of India to offer this scheme at 54 branches across the nation, it’s the most sought after of those offering GDS.

Three officials at SBI, Ahmedabad, said the bank is in talks with Shri Arasuri Ambaji Mata Devasthan Trust, which manages the renowned Ambaji temple in Gujarat, for a possible deposit of about 130kg of gold. The officials requested anonymity.

Girish Patel, administrator at Shri Arasuri Ambaji Mata Devasthan Trust, confirmed the negotiations with SBI and said it was drawn to the scheme by the tax benefits and rising prices.

“We have deposited 240kg of gold in SBI GDS in 2009-10 and are planning to deposit 15-20kg more as it’s a good option instead of keeping it in our vault," said an official at Anandji Kalyanji Trust, which manages 1,300 Jain temples in Gujarat’s Bhavnagar district.

The tax incentives make the scheme highly attractive, said Parimal Nathwani, vice-chairman of Shree Dwarkadhish Mandir Devasthan Samiti, which manages the famous Dwarkadhish temple in Gujarat’s Jamnagar district.

“We would certainly like to invest in this scheme if we get more gifts in the form of gold," he said. “At present, we have a total 67kg of gold, of which 52kg is in the form of the deity’s ornaments, which are used for darshan every day."

Corporation Bank’s GDS has also been gaining traction.

“We’re buying ornaments from temples such as Tirupati, etc., and we’re seeing a lot of them coming to deposit or sell their gold to us," Corporation Bank chairman and managing director Ramnath Pradeep said, without giving details on how much gold the bank has collected under the scheme.