Mumbai, Oct 31 (KNN)  The Reserve Bank of India has decided to allow urban cooperative banks (UCBs) to sanction loan up to Rs two lakh against gold collateral under the bullet repayment scheme, subject to certain conditions.

Previously, Urban Cooperative Banks (UCBs) were permitted to grant gold loans up to Rs one lakh under the scheme. 

“Based on the representations received from UCBs and National/State Federations, it has been decided to increase the quantum of loan that could be granted under the scheme, from Rs 1.00 lakh to Rs 2.00 lakh…,” said an RBI notification yesterday.

However, the apex bank has stipulated certain conditions.  The period of the loan shall not exceed 12 months from the date of sanction.  Further, interest will be charged to the account at monthly rests but will become due for payment along with principal only at the end of 12 months from the date of sanction.  

In addition, banks should maintain a Loan to Value (LTV) ratio of 75 per cent on the outstanding amount of loan including the interest on an ongoing basis, failing which the loan will be treated as a Non performing Asset (NPA).

As far as the valuation of gold is concerned, it would be done as per the circular the central bank issued in May 2014.  “In order to standardize the valuation and make it more transparent to the borrower, it has been decided that gold jewellery accepted as security/collateral will have to be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd. [Formerly known as the Bombay Bullion Association Ltd. (BBA)]. If the gold is of purity less than 22 carats, the bank should translate the collateral into 22 carat and value the exact grams of the collateral. In other words, jewellery of lower purity of gold shall be valued proportionately,” it said in May.  (KNN/ES)