Gold can get you 90% of its value as loan

THE NEW LTV will be available for a window of eight months. Fresh loans issued post March 31, 2021 will come under 75 per cent LTV. THE HIGHER LTV will not be available for nonbanking finance companies, including those operating in exclusive gold loan bu

In order to provide higher liquidity to households and small businesses, RBI has increased the LoanTo-Value (LTV) ratio of gold loans offered by banks from 75 per cent to 90 per cent. However, the higher LTV will not be available for non-banking finance companies.

As per the current guidelines, gold loans sanctioned by banks for nonagricultural purposes should not exceed 75 per cent of the value of gold ornaments and jewellery.

“With a view to mitigating the impact of Covid-19 on households, it has been decided to increase the permissible loan to value ratio (LTV) for such loans to 90 per cent. This relaxation shall be available till March 31, 2021,” said RBI.

Higher LTV will put more money in the hands of the customer for the same volume of gold pledged. Gold prices have appreciated more than 40 per cent since the beginning of the year. Due to the price appreciation, the loan amount has naturally increased by 40 per cent even at an LTV of 75 per cent. Once the LTV is increased to 90 per cent, this will increase the loan amount by another 15 per cent. This will solve the liquidity issues of small scale business persons and traders, who account for the largest chunk of the customer base, as well as individuals to a great extent.

The new LTV will be available for a window of eight months. Fresh loans issued post March 31, 2021 will come under 75 per cent LTV.

“LTV of 90 per cent in an increasing gold price scenario is fine. Only we must keep an eye on the margin because 10 per cent is a small cushion. This is still manageable. This will help the small businesses, micro and small units who avail gold loans for business needs as well,” said Padmaja Chunduru, MD and CEO of Indian Bank.