The Reserve Bank of India (RBI) has increased the amount of credit banks can give in exchange for pledging gold and gold jewelry for non-agricultural purposes from 75 percent of the value of the pledged gold to 90 percent.
This loan-to-value relaxation (the amount of credit that can be obtained as a percentage of the value of the gold pledged) is in effect through March 31, 2021.
Significantly, the central bank has raised the loan-to-value limit (LTV) only for banks and not for gold lending companies, as its announcement went on Thursday.
“In order to further mitigate the economic effects of the Covid19 pandemic on households, entrepreneurs and small businesses, it was decided to increase the permitted loan-to-value ratio (LTV) for loans against pledging of gold jewelry and jewelry for non-agricultural purposes.” From 75 percent to 90 percent “, it says in a circular issued on Thursday.
This improved LTV ratio will allow borrowers to overcome their temporary liquidity mismatches due to the pandemic, she added.
This step to increase the LTV for banks is against the background of an enormous increase in demand for gold loans in the face of the pandemic and the rise in the price of the yellow metal.
Advantage borrower
CVR Rajendran, MD & CEO, CSB Bank, said, “This is a progressive move and should increase the demand for gold loans. This puts more money in the hands of the borrower. Increasing the LTV ratio will help us grow the book.
“While this move will help expand the gold credit market, we will see increased competition in this segment as well. Lenders need to ensure that their assessment and risk management processes remain tight and robust, ”he added.
