In the newly issued guidelines by the RBI, the interest and principal payments on gold deposits under the scheme will be denominated in gold. Banks can use the stock of gold they collect as part of their statutory liquidity ratio (SLR) requirement, under which they have to make 21.5% of their investments in government bonds. 

Moreover, the gold deposits will be subject to cash reserve ratio (CRR) requirements under which banks now have to maintain 4% of deposits as interest-free buffer with the central bank. It’s not clear whether it will be 4% of the gold deposits or whether it will be calculated after adding the value of the gold to the overall deposit base. 

As Soumya Kanti Ghosh, the chief economist at SBI says, “Banks had suggested that the gold deposits be counted towards existing cash reserve ratio requirements, but this suggestion has not been accepted by the RBI.” 

In the guidelines, RBI said banks will be allowed to accept three kinds of deposits under the scheme—a short-term deposit with maturity ranging between one and three years; a medium-term deposit with a five to seven years horizon; and a long-term deposit maturing in 12-15 years.