BANKS FEAR RISKS FROM GOLD LOANS

MUMBAI: Banks may not lend higher amounts against gold despite central bank permission on worries they will not be able to recover debt in case gold price crashes and the borrower defaults, three industry executives said.

The Reserve Bank of India on Thursday increased the maximum loan to value (LTV) ratio for gold loans to 90% from 75% earlier, meaning customers can pledge gold with banks and get up to 90% of its value as loans, up from 75% so far. The scheme will be applicable till March 31, 2021.

The primary reason behind the caution is the surge in gold prices.

An executive director at a bank said on condition of anonymity that with an LTV of 90%, lenders will have a margin of just 10%, which is very thin at a time gold prices are volatile.