Loans against gold by banks enhanced up to 90 percent of post-pandemic till March 2021
Reserve Bank of India, decided to raise the permissible loan to value ratio (LTV) for loans against the pledge of gold ornaments and jewelry for non – agricultural purposes to 90 percent.
This decision has been taken with a view of alleviating the economic impact of the COVID -19 epidemic on households.
Guidelines of RBI
According to the guidelines issued by the RBI in a circular, the loans permitted by the banks in opposition to the golden ornaments and jewelry should not be more than 75% of the value of the golden ornaments and jewelry which has now been expanded to 90 percent.
Gold loans sanctioned by the bank on and after the 1st April 2021 have to stimulate an LTV ratio of 75%, as the circular added.
After the action taken by the RBI, there is a relief for the gold loan borrowers as now they can take a gold loan and diminish the urgent financial needs caused because of the coronavirus epidemic.
This relaxation to common households, entrepreneurs, and small businesses to increase the permissible loan to value ratio (LTV) for loans against the jewelry and ornaments for non – agricultural purposes from 75% to 90% is only valid till 31st March 2021.
This may extend if the Coronavirus epidemic stays for a further period.
The 90 percent of the loan against the precious gold also increases the risk of gold financing players, as the gold is at a high level of record. A fall in the prices of golden will increase defaults.
So, the investors should be alert on gold loan companies, as G Chokkalingam, the founder of Eqinomius Research and Advisory asserted. He further added that the RBI has taken the right decision from the microeconomics perspective. It is trying to create demand in the system.