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RBI relaxes ceiling on gold loans for non-agriculture purposes

23 Jul 2014 Evaluate

The Reserve Bank of India (RBI) has relaxed Rs 1-lakh ceiling on loans for non-agricultural purposes against gold jewellery. Borrowers can now pledge their gold and get a higher value of loans, provided that the loan-to-value (LTV) ratio does not exceed 75% of the cost of the gold.

The RBI’s notification highlighted that 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 central bank further notified that the LTV of 75% should be maintained throughout the tenure of the loan and computed against the total outstanding in the account including accrued interest and current value of gold jewellery accepted as security/collateral. 

The move is likely to monetize the household gold holdings in India by encouraging people to bring out their gold holdings. It will also protect the interest of the customers who can continue to opt for gold loans based on merits of the player rather than purely based on LTV ratios. Furthermore, this initiative may help commercial banks increase their retail secured lending portfolio.

Earlier, in December, RBI had stipulated a ceiling of Rs 1 lakh and a bullet repayment of loans clause which means payment of both the interest and the principal at one time.

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