RBI sets lending limit for banks on gold loans at 75%
Updated: Jan 21, 2014 02:05:58pm
Mumbai, Jan 21 (KNN) The Reserve Bank of India (RBI) has standardised the norms for valuation of gold jewellery as collateral for loan from banks and has barred the banks from offering gold loans worth more than 75 per cent of the value of gold jewellery and ornaments.
“As a prudential measure, it has been decided to prescribe a loan-to-value (LTV) ratio not exceeding 75 per cent for banks’ lending against gold jewellery (including bullet repayment loans against pledge of gold jewellery),” a RBI statement said.
This means that if the value of the gold is Rs 100, banks can lend Rs 75 to the borrower. Early this month, the central bank had increased the LTV ration for non-banking financial companies (NBFCs) lending money using gold as a collateral to 75 per cent from 60 per cent earlier.
Earlier there was no LTV ratio set for banks, which lend against gold.
RBI has also standardized norms to value the gold for the purpose of calculating the LTV.
"In order to standardise 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," RBI said.
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 added.
Banks should continue to observe necessary and usual safeguards and also have a suitable policy for lending against gold jewellery with the approval of their board of directors, it added. (KNN Bureau/SD)
“As a prudential measure, it has been decided to prescribe a loan-to-value (LTV) ratio not exceeding 75 per cent for banks’ lending against gold jewellery (including bullet repayment loans against pledge of gold jewellery),” a RBI statement said.
This means that if the value of the gold is Rs 100, banks can lend Rs 75 to the borrower. Early this month, the central bank had increased the LTV ration for non-banking financial companies (NBFCs) lending money using gold as a collateral to 75 per cent from 60 per cent earlier.
Earlier there was no LTV ratio set for banks, which lend against gold.
RBI has also standardized norms to value the gold for the purpose of calculating the LTV.
"In order to standardise 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," RBI said.
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 added.
Banks should continue to observe necessary and usual safeguards and also have a suitable policy for lending against gold jewellery with the approval of their board of directors, it added. (KNN Bureau/SD)
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