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Journalism of Courage
In a big relief to small borrowers, the Reserve Bank of India (RBI) has removed the upper ceiling on the quantum of gold loans extended by commercial banks. The earlier upper limit of Rs 1 lakh per loan was fixed seven months ago.
“Banks, as per their board approved policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end uses,” the RBI said in a notification to banks. This means a borrower can pledge any quantum of gold with the bank provided it’s for non-agricultural use. The RBI move is also expected to boost credit flow to small borrowers.
However, there is no change in the tenor of the loans which should not exceed 12 months from the date of sanction. “Interest will be charged to the account at monthly rests and may be recognised on accrual basis provided the account is classified as ‘standard’ account. This will also apply to existing loans,” the RBI said.
Similarly, the loan to value (LTV) of gold should be maintained at 75 per cent throughout the tenure of the loan for all loans extended against pledge of gold ornaments and jewellery for non-agricultural end uses. The LTV ratio should be computed against the total outstanding in the account, including accrued interest, and current value of gold jewellery accepted as security / collateral, the RBI said. The RBI fixed the LTV ratio for banks’ gold loans six months ago following a fall in gold prices.
George Alexander Muthoot, MD, Muthoot Finance, said, “The RBI’s view to maintain the loan to value for banks’ gold loans for non-agricultural end uses is a fair one and it shows that the regulators want to shape up this emerging sector for long-term giving level playing field to all players… whether it’s banks or gold loan NBFCs. This we believe will also protect the interest of the customers.”
