Your gold jewellery will now fetch you a higher loan amount. Here's why

The Reserve Bank of India (RBI) today via its regulatory statement announced that banks can now lend up to 90 per cent of the gold ornaments value, up from the existing limit of 75 per cent. The central bank increased the LTV (loan-to-value) ratio on gold loans to provide relief to borrowers looking to take gold loans to mitigate the financial exigencies caused by the novel coronavirus pandemic. The RBI stated that this relaxation is valid till March 31, 2021.

The RBI statement says, “As per the extant guidelines, loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75 per cent of the value of gold ornaments and jewellery. With a view to further mitigate the economic impact of the COVID-19 pandemic on households, entrepreneurs and small businesses, it has been decided to increase the permissible loan to value ratio (LTV) for loans against pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent. This relaxation shall be available till March 31, 2021.”

This move will allow households to borrow more against existing gold holding than before. Households will be able to get more funds by taking a loan and not be forced to sell it to get more liquidity.

What is a gold loan?

A gold loan is a loan against gold. It is a secured loan where gold articles such as gold jewellery, bullion etc. are taken as collateral by the lending bank/NBFC. The loan is given to the borrower against this gold as collateral.

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An individual can take a gold loan either via bank or non-banking financial institution (NBFC).

The amount of loan that an individual can get against a gold article will vary from lender to lender. For instance, ICICI Bank offers gold loans between Rs 10,000 and Rs 1 crore. Whereas the State Bank of India (SBI) offers gold loans between Rs 20,000 and Rs 20 lakh. While Muthoot Finance offers gold loans starting from a minimum amount of Rs 1,500 with no maximum limit.

Taking a gold loan is easy as a borrower is required to visit the nearest bank branch with the gold ornaments that will acts as a collateral along with documents of proof of identity, proof of address and photograph. The bank may ask you to provide further documents in case the need arises.

However, while taking a gold loan remember that part from processing charges there are valuation charges that will be required to be payable by you.



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