SOVEREIGN GOLD BOND AND REGULATORY NORMS OF RBI

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Gold has always played an important role in the economic and socio-cultural aspects of our country. It is for this reason our country has the second largest number of consumers of the “Yellow Metal” or “Gold”. Even though the world is going through a crisis and most of the operations around the world have to come to a halt, the price of gold is not stable but, in fact, is fluctuating at a higher level. In other words, the affordability of physical gold will always remain a questionable fact except for people with sufficient financial resources.

Sovereign Gold Bonds by the RBI and its Regulatory Norms

In order to overcome these disadvantages, the Sovereign Gold Bold was launched by the Government of India in November 2015 under Gold Monetization Scheme. These securities indeed are being introduced as an alternative to possession of physical gold.

WHAT IS SOVEREIGN GOLD BOND?

Sovereign Gold Bonds refers to those government securities which are denominated in grams of gold and the value for which depends on the market value of gold on the day of subscription. These kinds of securities are issued by the Reserve Bank of India in tranches in consultation with the Government of India.  The terms and conditions for the issue of these securities are notified by RBI from time to time through its notifications or circulars of RBI.

FEATURES OF SOVEREIGN GOLD BOND [1]

The following are the features of Sovereign Gold Bond scheme:

  • Any person resident in India as defined under the Foreign Exchange Management Act can hold the bond however on change of residential status, the investor can hold the bond up to the date of redemption or maturity.
  • These bonds are issued in tranches by Reserve Bank of India and sold through nationalized banks, scheduled foreign banks, scheduled private banks designated post offices and Stock Holding Corporation of India directly to the individuals or through their agents.
  • Denominations of these bonds are in multiples of grams of gold.
  • Price of these bonds will be fixed based on the average closing price of 999 purity gold during the previous week(Monday-Friday) published by Indian Bullion and Jewelers Association Ltd.
  • The interest payable on these bonds is 2.75% p.a on the amount invested which shall be paid on a half-yearly basis.
  • The maturity period for these bonds is eight years from the date of issue with pre-mature  redemption being allowed from the fifth year of investment.
  • The minimum limit on investment of these bonds is  1 gm. and maximum limit is 4 kgs for individuals and HUF while it is 20kgs for trust and other notified entities.[2]
  • The investor holding these bonds can be a single person or a joint holder in a group. However, the limit on maximum investment in these bonds can be applied only to the first person who is the holder of the bond.
  • These bonds can also be used as collateral for loans and therefore loans can be provided on these bonds as a lien.
  • The holders of these bonds will be issued a Certificate of Holding on the date of the issue of such bonds. Further, these bonds also have the option of converting the securities to be held in dematerialized form on an application made by the holder.

PROCEDURAL GUIDELINES  BY RBI FOR  SERVICING THE BONDS[3]

The Reserve Bank of India has issued certain guidelines for the receiving offices regarding the following aspects:

  • Nodal/Branch Offices

The banks, post office, or any other institutions accepting applications for sovereign gold bonds should identify nodal or branch offices responsible for carrying on the activity of inviting subscription of these bonds. Such nodal offices are responsible for preliminary scrutiny of the application. Further, they should also provide contact details of the  officer  responsible for this activity to RBI. They should also form an effective consumer grievance mechanism and communicate the same to RBI.

  • Applications

Every receiving office should collect details regarding the PAN card of the applicant and also should ask the applicant to provide for unique ID in the E-Kuber portal otherwise the application will be rejected by the portal.

Further, if the payment for subscription exceeds Rs.20,0000 then it should be collected through cheques/Demand  Draft/Electronic payments.

An applicant can cancel the subscription until the date of issue, however, the cancellation  is for full security which has been subscribed by the holder and not for the part of security security subscribed by the holder.

The receiving offices must intimate rejected applications and also refund the subscription amount otherwise the penalty at repo rate + 2 %  for each day of delay will be imposed on receiving offices.

  • Allotment and Generation of Certificate of holdings

The allottee will usually be provided with a certificate through the registered e-mail id. However, if required, the allottee can make an application with the receiving offices. The receiving offices should download the form in A4size 100 GSM paper and provide it to the allottee.

  • Nomination

The receiving offices are required to verify the particulars of the security subscribed and the details of the person who was the nominee while cancellation of nomination in Form E. However, in case of an additional nomination, they should examine the application in the same way as the original application made in Form-D. 

In case of claims made by nominees, receiving offices should satisfy themselves that there are no rival claims and on being satisfied, it can issue a fresh certificate of holding to the nominee on the death of allottee.

  • Forms of holding and dematerialization

These bonds are held with RBI as Bond Ledger Account or with depositories in dematerialized form.  However, if the application is made for dematerialization by the allottee, it should ensure the correctness of the details provided by the applicant. Also, it should verify that the details of the customer in the depository correspond with the depository records.

  • Re-materialisation

The holder should make an application before the depository participant by providing necessary details  and the depository participant shall process the application through E-kuber Portal.

During the time of processing of the  re-materialisation these securities cannot be traded any stock exchange or securities market.

  • Transfer of Bonds

These bonds can be transferred by way of trading in exchanges, however, in case of bonds held in the physical form, an application should be made in Form-F and the receiving offices are required to maintain the records in the following manner:

  • Application for transfer should be accepted only on enclosing certificate of holding.
  • The details of the applicant should be verified with appropriate records or E-Kuber Portal.
  • KYC details of the transferor and transferee should also be verified by receiving offices.
  • Subsequently, the transfer request should be processed through E-Kuber Portal.
  • On the recording of transfer, the nomination by the transferor will also stand cancelled.
  • Title to the bond when no nomination exists

In such cases, the receiving offices should satisfy themselves regarding the genuineness of the title to the bond and also that there are no counterclaims by any person for the security. Further, they can ask for the execution of an indemnity bond.

  • Loans against bonds and creation of lien, pledge, hypothecation on such bonds

The loan value ratio on a gold loan is applicable even for loans provided against such securities as specified by RBI. On providing loans against such securities the said transaction should be recorded and revoked by banks providing loans against such securities as and when required. In the case of dematerialized bonds, the lien will be marked by the depository participants.

  • Payment of Interest

If the bonds are held in Bond Ledger Account(BLA) account of RBI, the interest should be credited through the bank account of the holder. In case of dematerialized bonds, the interest will be credited to the account of the holder by the depositories.

  • Redemption of payment

These bonds are redeemable at the end of 8 years and premature redemption is allowed on such bonds at the end of 5 years. In case of premature redemption,  intimation should be given 10 days prior to the date of payment of interest by the holder of the bond. The receiving offices can ask for additional documents to verify the correctness of the information provided by the holder. On being satisfied with the correctness of the information, the receiving office should process the request 4 days before the date of payment of interest at the next date.

CONCLUSION

On analysis of the above, we can conclude that the Sovereign gold bond as security has a wider scope for investments in the future since gold prices have increased at a higher rate and its affordability has been questionable. Therefore, RBI is correct in its action on laying down rules or procedures for the service of such securities.


Contributed By – Aishwarya S
Designation – Associate

King Stubb & Kasiva,
Advocates & Attorneys

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