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Kolkata/Mumbai: The likelihood of potential money laundering probes and logistical gaps in assessing the stock of physical gold may have clouded the prospects of digital gold transactions with the Securities Exchange Board of India (Sebi) ordering about 30 debenture trusteeships to disassociate from the asset class, people familiar with the matter told ET.
India Bullion & Jewellers Association (IBJA) has also written to the capital markets regulator raising concerns for storing physical gold against digital metal purchases and asked it to regulate the digital gold business.
The move comes at a time when digital gold is gaining importance in the Indian market and is becoming a hit with millennials, primarily due to ease of investing. One can invest digitally without any hassle and purchase 24K pure gold with even Re 1.
To be sure, there is of course the issue of the National Spot Exchange Limited (NSEL) scam that occurred in 2013 where brokers mis-sold NSEL products to clients by assuring them fixed returns. The defaulters, on the other hand, hypothecated stocks and allegedly produced fake warehouse receipts and siphoned off the money.
“The biggest worry is about the storage of gold against all digital gold transactions,” said a senior executive involved in the trade. “Whether at all the gold is being kept in a vault is where the fear lies.”
Trusteeship companies were primarily engaged in certifying physical stock of gold against any digital purchase.
The capital market regulator said that undertaking activities related to unregulated products such as digital gold is not in accordance with the provisions of Sebi (Debenture Trustees) Regulations.
Somasundaram PR, regional CEO, India, World Gold Council, said that the market regulator has been issuing notifications on digital gold transactions over the last few months asking brokers, debenture trustees and investment advisers to stay away from unregulated products like digital gold.
“This has impacted the Diwali sales of digital gold as people are worried. But if Sebi comes up with a detailed regulatory framework for doing digital gold business in India, there would have been more clarity and transparency,” Somasundaram said. “The fly-by-night operators could have been eliminated.”
India has an immense appetite for gold and is the second-largest consumer of the yellow metal in the world. Although Covid has dented demand for the metal, it is expected that the consumption of gold will be around 600 tonnes this year. In pre-Covid times, India’s gold demand was around 800-850 tonnes annually. In fact, nearly 22,000 tonnes of gold are lying idle in Indian households.
There are three major digital gold players in the country – MMTC-PAMP, Augmont and SafeGold.
“Existing players, taking cue from the World Gold Council’s global guidance notes on digital gold providers, are collaborating to suggest a draft regulatory framework suitable to India,” Somasundaram said. “The World Gold Council is providing support to this initiative given the growing importance of digital gold. We have helped digital gold businesses in Malaysia, Singapore and Indonesia to work out a regulatory framework based on our Internet Investment Gold Guidance report.”
In October, Sebi asked investment advisers to refrain from dealing in digital gold.
In August, NSE had directed its members, including stockbrokers, to discontinue the sale of digital gold on their platforms by September 10.