Gold jewellery to now fetch 90% of its value as bank loans

August 7, 2020 3:15 AM

The RBI’s move is aimed at increasing the flow of credit to households at a time when banks have turned risk averse.

The RBI’s move is aimed at increasing the flow of credit to households at a time when banks have turned risk averse.

By Shritama Bose

Banks can now lend 90% of the value of borrower’s gold jewellery, up from 75% earlier, after the RBI on Thursday increased the maximum permissible loan-to-value (LTV) ratio for gold loans.  The new LTV ratio, applicable till March 31, 202, may give banks a short-term edge over non-bank competitors who need to play by the old norms. However, gold loan NBFCs have thrived because of their reach and servicing capabilities.

Given gold prices are at record highs and soaring, however, the risks of loaning a bigger share of the value of the jewellery are higher.

The RBI’s move is aimed at increasing the flow of credit to households at a time when banks have turned risk averse. Experts say gold loans are simple products with loans being disbursed in a short time and across the counter.

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