RBI allows banks to fix ceiling on loan against gold for non-farm use

Written by fe Bureau | Mumbai | Updated: Jul 23 2014, 07:19am hrs
Reserve Bank of India (RBI) on Tuesday allowed banks to decide upon the ceiling on loans against the pledge of gold jewellery and ornaments for non-agricultural end uses.

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, RBI said in a notification.

However, the central bank said the tenure of the loans shall not exceed 12 months from the date of sanction and interest should be charged to the account at monthly rests and may be recognised on accrual basis provided the account is classified as standard account.

In this connection, it is also clarified that loan-to-value (LTV) of 75% shall be maintained throughout the tenure of the loan for all loans extended against pledge of gold ornaments and jewellery for non-agricultural end uses, RBI said.

The LTV ratio would be computed against the total outstanding in the account, including accrued interest and current value of the jewellery accepted as security, determined as per the methodology prescribed in RBI's January circular.

In December last year, RBI had permitted banks to offer loans against gold with a ceiling of R1 lakh and a tenure of 12 months.

On the valuation of gold, RBI had decided that gold jewellery accepted as collateral be valued at the average of the closing price of 22-carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers' Association.

If the gold is of purity less than 22 carat, the bank should translate the collateral into 22 carat and value the exact gram of the collateral. In other words, jewellery of lower purity of gold shall be valued proportionately, the central bank had said in January this year.