An anxious Manisha Kamble, 34-year-old housewife from a Mumbai suburb, has been given a notice by her jeweller: encash the regular installments of money she had deposited at the retailer and buy gold jewellery.

Like Manisha, others who have been depositing small sums of money every month (like a recurring deposit) to make an annual purchase of gold jewellery have been left high and dry, after a recent move by the banking regulator to bring gold installment schemes under the ambit of public deposits.

Jewellery shops and bullion showrooms in the country have started rounding up their long term gold installment schemes, quoting the new Reserve Bank of India guidelines for long term gold schemes.

The new law, under the Companies Act, has capped collection of deposits by jewellery companies, limiting the interest rate that companies can offer depositors to 12.5%, and capping the total deposits collected to within 25% of their net worth.

Given that the scale of the scheme would also be lower on the back of the new rules, jewellers may have to turn down customers if they cross the 25% mark, or ask customers to enrol for smaller installments.

Many big bullion players like Tanishq, P C Jewelers, Reliance gold, Gitanjali Group, among others, have been hit by the new rules. Monthly instalment schemes for gold purchase have been a popular savings scheme and even smaller mom-and-pop bullion dealers have worked out their own monthly saving schemes to encourage more gold buying.

Tanishq, a national jewellery retailer, has stopped accepting fresh deposits under its gold savings scheme. An official said, the new Companies Act has laid down certain conditions for collection of public deposits by companies, other than banks and non banking financial companies. Unless jewellers satisfy the conditions, they cannot run the deposit schemes.

Sandeep Kulhalli, Senior VP, Jewellery Retail and Marketing, Titan Company, said the company had written to the Company Law Board and the Commerce Ministry for clarifications of the rules, and have temporarily stalled the scheme.

Tanishq reportedly has over $166 million (Rs 10 billion) of deposits under its two gold saving schemes currently, which contributed to over 20% in revenues for the jewellery division.

The new rules treat the schemes beyond a year as public deposit, and most jewellers are limiting the scheme period to 12 months instead of the earlier 15 months or five years.

For instance, consumers like Manisha invest $16.64 (Rs 1,000) a month for 36 months in Pune headquartered PN Gadgil Jewellers’ gold rush investment scheme. Jewellers would willingly fork out a return of 19% to the deposit for three years, a return of 12.5% for two years, and 8% for a year.

However, with the deposits brought under the Companies Act, the effective return cannot be more than 12%.

Bullion dealer Prathamesh Kalsure said that many jewellers, especially big brands, had collected huge amounts of deposits from consumers through these monthly installment schemes. “The RBI has asked them to return the amount which is why these schemes are being closed or shortened.”

Mohanlal Gupta of Twin Cities Gold Merchants Association however, advised against shortening the scheme. “Going for a shorter installment period is not advisable, as it will increase the monthly equated monthly installments. It is better to close the scheme and purchase jewellery.”

This too, could prove to be problem for people like Manisha, for the price of gold currently reigns at around $466 (Rs 28,000) per ten grams. Given the high price, consumers might want to stall fresh purchases.

Some jewellers had schemes whereby customers pay equal installments for 11 months, post which the jewellery retailer would contribute one installment. Thereafter, the customer would buy jewellery worth 12 installments.

“By using such schemes, it helped a typical Indian household’s approach to savings for the purchase of an expensive jewellery set. Besides easing the process of buying expensive jewellery, these schemes offered attractive rate of returns between 16% and 17,” said Kalsure.

As Prateek Mehta, bullion dealer said, “The installments that jewellers collect from customers are now deemed as deposits. And as per RBI rules, no deposit can pay more than 12.5% as return, which means that schemes of almost all companies become illegal, unless it is collected within one year when it is considered an advance.”

Monthly instalment scheme for gold purchase has been a popular savings scheme. While several jewellers are reworking the scheme to suit the new guidelines, others are withdrawing their schemes altogether.

This has put several customers in a fix, as they are unsure whether to continue with the scheme for a shorter period, transfer the money to a new scheme, or close the scheme before time and buy gold jewellery at the current high rate.

As per the terms of the gold schemes, customers can only purchase gold jewellery under the scheme, and the money saved cannot be exchanged for money or even investment in gold.

“Saving schemes of Tanishq, PC Jewellers, PN Gadgil Jewellers and Tribhovandas Bhimji Zaveri will now become deposits,” said Ashok Minawala, former chairman of the All India Gems and Jewellery Trade Federation. All private limited jewellers who run gold saving schemes for durations of more than a year would now come under the new Companies Act, he added.

The cut off date is August 31, wherein all bullion companies would need to comply with the revised regulations. While PC Jeweller has stopped its `Jewels for Less’ scheme, TBZ continues with its Kalpavruksha scheme for around 10 installments, but has closed its other gold deposit scheme. Tanishq has also suspended its Golden Harvest saving scheme for fresh enrollments, and has asked customers who had enrolled earlier to cash out.