New Delhi: The Indian government has dropped plans to utilize gold mobilized under the proposed Monetization scheme for meeting mandatory liquidity requirements for banks, as it wants to avoid another confrontation with Reserve Bank of India (RBI).

The government dropped plan to use gold deposits as part of CRR, SLR in gold monetization scheme because of opposition from RBI, sources said.

The Gold Monetization Scheme is expected to be launched by the first week of September and the Cabinet approval for the same is expected in a couple of weeks, sources said.

RBI had argued against using gold deposits as CRR and said the move will weaken CRR as a monetary policy tool. The government does not want to open to many fronts with RBI, sources said. Among others, the government and the RBI had differed on issues related to the proposed monetary policy committee for setting interest rates, although the differences are believed to have sorted out now.

The Cash Reserve Ratio (CRR) is the portion of the total deposits, which has to be kept with RBI in cash, while Statutory Liquidity Ratio (SLR) is the portion of deposit compulsorily parked in government securities.

To incentivize banks, it is proposed that they may be permitted to deposit the mobilized gold as part of their CRR/SLR requirements with RBI.

This aspect is still under examination, the draft guidelines on Gold Monetization Scheme issued in May had said. CRR is at 4 per cent while SLR is at 21.5 per cent. So, 25.5 per cent of the cash deposit mobilized by banks are locked in these two statutory ratios.

If gold mobilized through scheme is allowed to meet CRR/SLR requirements, the value of the metal will be considered as deposits for meeting the reserve ratios.