Through the regulatory statement today, the Reserve Bank of India (RBI) said banks can now loan up to 90% of the value of gold decoration up from the existing ceiling of 75%. To provide relief to borrowers seeking gold loans to reduce the financial requirements caused by the novel coronavirus pandemic, the central bank increased the LTV (loan-to-value) ratio on gold loans. It was stated by the RBI that this relief is valid until 31 March 2021.
The statement from the RBI states that “Lending against gold ornamental and non-farm jewelry pledges by banks to the extent of the existing guidelines should not amount to 75% of the value of gold ornamentation and gems.
The decision has been reached to increase the permissible loan at a value (LTV) ratio from 75% to 90% for loans on pledges of gold ornaments and jewelry for non-agricultural purposes in a bid to mitigate more the economic impact of the COVID-19 pandemic.
The decision was made to increase from 75% to 90% the permissible Loan to Value Ratio (LTV) for loans under gold ornament and jewelry for non-agricultural purposes to further alleviate the economic impact of the COVID-19 pandemic on households, businesses and small enterprises.
With this move, households will borrow more than before from existing gold holdings. Households can get more funds by borrowing and will not have to sell them for more liquidity.
A gold loan is a secured loan whereby the lending bank / NBFC collects gold items such as gold jewelry, bullion, etc. The borrower is granted the loan as collateral for this gold.
An individual can take a gold loan either through an NBFC or a bank.
The loan amount a person may receive for a gold item will vary from lender to lender. For example, ICICI Bank offers Rs 10 000 to Rs 1 crore for gold loans. At the same time, gold loans range from Rs20,000 to Rs20 Lakh are offered by the State Bank of India (SBI). Muthoot Finance offers gold loans with no maximum limit starting with a minimal amount of Rs 1.500.
A gold loan is convenient since the borrower needs to visit the nearest bank branch with the gold ornaments as a pledge together with proof of identity documents, address evidence and photographs. If necessary, you may be asked by the Bank to supply additional documents.
