New Delhi: The Reserve Bank of India’s revised order related to gold loans will come into full force on April 1. The Reserve Bank issued the order in June. Although gold loan institutions have requested a 6-month extension to comply with the rule, the RBI has not yet taken a decision.
Loans up to Rs 2.5 lakh were exempted from the stringent conditions for gold loans. The draft guidelines stipulated that only 75% of the value of the pledged gold (LTV ratio) could be disbursed as loan. However, following protests, this was raised to 85% in the final notification for loans up to Rs 2.5 lakh. 80% will apply for loans between Rs 2.5 lakh and 5 lakh and 75% for loans above Rs 5 lakh. In short, gold pledged as microloans will get a relatively higher amount as loan.
However, when calculating the value, the interest payable at maturity will be taken into account along with the principal. This calculation may result in a reduction in the amount received as a loan. The provision is applicable to banks and non-banking financial institutions (NBFCs).
No detailed inspection required up to 2.5 lakhs
- Those taking loans up to Rs 2.5 lakh will also be exempted from detailed checks (credit appraisal) conducted by financial institutions on matters including the individual’s repayment capacity.
- Bullet repayment loans are loans where the principal and interest are paid together at the end of the loan term and the collateral is repaid. There is no impediment to renewing such loans (12 months) for urgent and personal purposes, other than for income generation. Renewal is permitted only if there is no outstanding balance in all types of gold loans.
- A maximum of one kilogram of gold and up to 10 kilograms of silver can be pledged for a loan. The limit is 50 grams for gold bullion and 500 grams for silver coins.
- A document or affidavit confirming ownership of the gold being pledged must be provided. This is to avoid stolen property being pledged.
- If the loan is repaid, the gold must be returned within 7 working days. In case of delay, a compensation of Rs. 5,000 will be paid for each subsequent day.
- Jewelry, gold and silver (e.g. bullion including gold bars) other than coins will not be accepted as collateral.
- The value should be determined by calculating the purity of the gold. The valuation should be based on the price for the last 30 days and the closing price of the previous day, whichever is lower.
- The value of stones, etc. in jewelry will not be considered.
- The method for calculating purity and weight should be the same in all branches. This should be published on the website. The user should be informed, including the compensation scheme, in case of loss of the pledged gold.
- When receiving gold, a certificate should be prepared and given to the user, including information on the weight, purity, and any damage to the jewelry, along with a picture.
- Sufficient time should be given before the defaulting loan is put up for auction. The auction process should not commence until one month after the notice is given. In cases where the loan is put up for auction, an advertisement should be given in one local and one national media outlet.
- The reserve price during auction should not fall below 90 percent of the value of the gold. If the auction fails twice, the reserve price can be reduced to 85%.
- The first auction should be held in the same district. If that fails, the auction should be held in neighboring districts or online.
- If any individual is regularly taking out gold loans beyond the bank’s limits, monitoring should be conducted to ensure that t
