Banks should have a suitable policy for lending against gold jewellery

The Reserve Bank of India (RBI), on Monday, said that it had been decided to prescribe a loan-to-value (LTV) ratio of not exceeding 75 per cent for banks’ lending against gold jewellery, including bullet-repayment loans against pledge of gold jewellery. “Therefore, henceforth loans sanctioned by banks should not exceed 75 per cent of the value of gold ornaments and jewellery,” the RBI said in a notification to all banks.

Further, 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)].

“This would standardise the valuation’, and make it more transparent to the borrower,” the RBI observed.

“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,” the RBI added.

The central bank reiterated that 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 boards of directors.

Value ratio

PTI reports:

Earlier this month, the RBI had raised loan to value ratio to 75 per cent from 60 per cent. This was in view of moderation in the growth of gold loan portfolios of non-banking finance companies (NBFCs) in the recent past.

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