Context:

To facilitate the development of the bullion market in India, an enabling framework for Banking Units in IFSC to operate Unallocated Accounts has been notified.

Allocated vs Unallocated Account

• The investor can typically select between an unallocated deposit account and an allocated deposit account.
• The gold is physically attributed to the account holder only in the case of allocated deposits in specially assigned accounts.
• In the case of these allocated accounts, the bank cannot lend this gold and if the bank becomes insolvent, the bank’s creditors do not have an interest in this gold.
• A customer with an unallocated account is an unsecured creditor of the bullion bank or gold dealer.
• Gold held in unallocated accounts, just like with many other bank deposits, maybe lent by the banks.

Objective of Regulations

• An enabling framework for Banking Units in IFSC to operate Unallocated Accounts for the purpose of trading, hedging, and swapping with Physical Gold / Silver is being notified with the following objectives:
  • To mitigate the risks of the prospective clients of Banking Units who may be looking to buy/ sell or take positions in gold/silver or for the purpose of trading or to hedge their exposures in bullion.
  • To aid in the financialization of gold as an asset class.