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The gold monetisation scheme (GMS), announced by the Reserve Bank of India (RBI) on Thursday, would work only for medium- and long-term gold deposits as banks would find it difficult to recover operational costs and hedging costs for short-term deposits, bankers said. The designated banks are allowed to accept gold deposits as a short-term deposit (one to three years), medium-term (five to seven years) and long-term (12 to 15 years). Medium-term and long-term deposits would be treated as government borrowings and rate of interest on that will be determined by the government in consultation with RBI, while short-term interest rates would be fixed by individual banks. Given the costs and assessment of earnings by lending gold, bankers say they would be able to offer an interest rate between one and two per cent on short-term gold deposits. While all charges like melting and testing in medium- and long-term deposits will be borne by the government, banks will have to shell out the

The finance ministry on Friday said it has moved a Cabinet note on setting up the Monetary Policy Committee (MPC), which will retain dominant role of the Reserve Bank of India ( RBI) in the proposed interest- rate setting panel. “The government has prepared aCabinet note on MPC. RBI is a very credible institution and nothing will be done in MPC composition that undermines the role of RBI,” said a senior finance ministry official. The official did not elaborate on composition or voting rights of the RBI governor in the MPC, which will replace the current practice of the governor d eciding on interest rate on advice of the technical advisory committee. The revised draft of the Indian Financial Code, released by the ministry in July, had suggested doing away with the RBI governor’s veto power and proposed a 7- member MPC to take decisions by a majority vote. Of the seven members, four would be government nominees and the rest from RBI. Under the current system, the RBI governo