Borrowers can now pledge gold jewellery and ornaments in the banks and get loans of up to 90 per cent of its value, the Reserve Bank of India has said. The RBI move has come at a time when gold prices have shot up to over Rs 55,000 per 10 grams, a rise of close to 40 per cent this year. “It has been decided to increase the permissible loan to value ratio (LTV) for loans against pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent,” the RBI said on Thursday. This relaxation will be available till March 31, 2021. This is being allowed “to further mitigate the economic impact of the Covid-19 pandemic on households, entrepreneurs and small businesses,” the RBI said. As of now, loans sanctioned by banks against pledging gold ornaments and jewellery for non-agricultural purposes should not exceed 75 per cent of its value. Gold loans by banks will get a fillip from the increase in the permissible LTV. “It is expected that gold loans will be one of the preferred options for raising funds in the current environment for many borrowers as individuals and micro enterprises go for it to meet immediate funding needs,” rating firm Crisil said. However, with gold prices at all-time highs, banks may be wary of increasing LTV all the way to 90 per cent. At the same time, as the LTV relaxation is currently not applicable to NBFCs as of now, some of the incremental demand witnessed by them may move to banks on account of higher value realisation. “Of course, this is subject to banks meeting the short turnaround times and seamless disbursal process that the NBFCs are known for and their customers are used to,” Crisil said.
