Reserve Bank of India (RBI) has allowed regional rural banks (RRBs) to grant gold loan up to Rs 2 lakh with bullet repayment option.
Reserve Bank of India (RBI) has allowed regional rural banks (RRBs) to grant gold loan up to Rs 2 lakh with bullet repayment option. RRBs grant advances for various purposes against the security of gold ornaments and jewellery as part of their lending policy. Period of the loan shall not exceed 12 months from the date of sanction. Interest will be charged to account at monthly rests but will become due for payment along with principal only at the end of 12 months from date of sanction.
All RRBs will have to maintain a Loan to Value (LTV) ratio of 75% on the outstanding amount of loan including the interest on an ongoing basis, failing which the loan will be treated as a Non Performing Asset (NPA).
It is clarified that crop loans sanctioned against the collateral security of gold/gold ornaments shall continue to be governed by the extant income recognition, asset classification and provisioning norms for such loans.
In order to standardise the valuation and make it more transparent to the borrower, the central bank had earlier decided that gold jewellery accepted as security / collateral will have to 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 Ltd.
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If the gold is of purity less than 22 carats, the bank should translate the collateral into 22 carat and value the exact grams of the collateral. In other words, jewellery of lower purity of gold will be valued proportionately.
All RRBs will observe necessary safeguards and also have a suitable policy for lending against gold jewellery with the approval of their boards of directors.
While considering granting advances against jewellery, RRBs will keep in view advantages of hallmarked jewellery and decide on the margin and rates of interest thereon. It should, however be ensured that such advances are not granted for speculative purposes.