Regional Rural Bank’s Gold Loan Limit Extended

IAS Prelims 2023

The Reserve Bank of India has doubled the quantum of loan that Regional Rural Banks (RRBs) can give against security of gold/ gold ornaments to ₹2 lakh with bullet repayment option.

Such loans will be subject to the conditions that the period of the loan cannot exceed 12 months from the date of sanction; interest will be charged on the amount at monthly rests but will become due for payment along with principal only at the end of 12 months from the date of sanction.

RRBs are required to maintain a Loan to Value (LTV) ratio of 75 per cent (that is, if the value of gold ornaments pledged with a bank is ₹1 lakh, then it will give a loan of ₹75,000) on the outstanding amount of loan, including the interest on ongoing basis, failing which the loan will be treated as a non-performing asset.

Crop loans sanctioned against the collateral security of gold/ gold ornaments will continue to be governed by the currents norms relating to income recognition, asset classification and provisioning for such loans.

Gold jewellery accepted by banks 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.

If the gold is of less than 22 carat purity, the bank has to translate the collateral into 22 carat and value the exact grams of the collateral. In other words, jewellery of lower purity of gold will be valued proportionately.