Recent Development – RBI Has Relaxed Ceiling on Gold Loan

Last week, the Reserve Bank of India (RBI) relaxed the one lakh rupees ceiling on loans against gold jewellery. Borrowers can now pledge their gold and get a higher value of loans, provided that the loanto-value (LTV) ratio does not exceed 75 per cent of the cost of the gold. But these loans have to be for non-agriculture purposes. The move is expected to monetize the household gold holdings in India by encouraging people to bring out their gold holdings.

“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.

In December 2013, RBI had stipulated a ceiling of one lakh rupees and bullet repayment (one-time payment) – that means payment of both the interest and the principal at one go.

RBI said in the release, “We havve received representations from banks requesting to increase the prescribed ceiling and to review other conditions applicable for non-agricultural loans against pledge of gold ornaments and jewellery, where both interest and principal are payable at maturity of the loan, especially in view of introduction of LTV ceiling for such loans.”

“The LTV of 75 per cent should be maintained throughout the tenure of the loan for all loans extended against pledge of gold ornaments and jewellery for non-agricultural end uses. The LTV ratio shall be computed against the total outstanding in the account, including accrued interest, and current value of gold jewellery accepted as security/collateral,” RBI said. This effectively means that at any point of the tenure of the loans the LTV ratio should not exceed 75 per cent of the value of the collateral.