Bank loans: RBI increases loan amount to 90% of value of pledged gold

The Reserve Bank of India (RBI) has increased the amount of loans banks can make against pledging gold ornaments and jewelry for non-agricultural purposes from 75% of the value of the pledged gold to 90%.

This relaxation of the Loan to Value (the loan amount that can be obtained as a percentage of the value of the pledged gold) is available until March 31, 2021.

Significantly, the central bank has tightened the loan-to-value (LTV) limit only for banks and not for gold lending companies, in line with its announcement on Thursday.

“In order to further mitigate the economic impact of the Covid19 pandemic on households, entrepreneurs and small businesses, it was decided to increase the loan-to-value ratio (LTV) authorized for loans against collateral of gold ornaments and jewelry for non-agricultural. from 75% to 90% ”, indicates a circular published Thursday.

This improved LTV ratio will allow borrowers to overcome their temporary liquidity mismatches due to the pandemic, he added.

The move to improve the LTV for banks comes against the backdrop of a huge increase in demand for gold loans given the pandemic and the rising price of the yellow metal.

Borrower advantage

CVR Rajendran, Managing Director and CEO of CSB Bank, said: “This is a gradual step that is expected to increase the demand for gold loans. This will put more money in the hands of the borrower. Increasing the LTV ratio will help us develop the book.

“While this move will help expand the gold lending market, we will also see increased competition in this segment. Lenders will need to ensure that their risk assessment and management processes remain rigorous and robust, ”he added.

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