BUSINESS

Jewel loan-to-value ratio raised to 90% from 75%

With gold prices at all-time highs, banks may be wary of raising LTV all the way to 90%, says Mr. Sitaraman.

With gold prices at all-time highs, banks may be wary of raising LTV all the way to 90%, says Mr. Sitaraman.  

With a view to further mitigating the economic impact of the COVID-19 pandemic on households, entrepreneurs and small businesses, the RBI has decided to increase the permissible loan-to-value ratio (LTV) for loans against pledge of gold ornaments and jewellery for non-agricultural purposes to 90%.

Under the current guidelines, loans sanctioned by banks against pledge of gold ornaments and jewellery should not exceed 75% of the value of gold ornaments and jewellery, which has now increased to 90%, the RBI said in a circular.

“This enhanced LTV ratio will be applicable up to March 31, 2021 to enable the borrowers to tide over their temporary liquidity mismatches on account of COVID 19,” the circular said.

Accordingly, fresh gold loans sanctioned on and after April 1, 2021, shall attract an LTV ratio of 75%, it added.

“Gold loans by banks will get a fillip from the increase in permissible LTV. It is expected that gold loans will be one of the preferred options for raising funds in the current environment for many borrowers as individuals and micro enterprises go for it to meet immediate funding needs,” Krishnan Sitaraman, senior director, CRISIL Ratings said.

“However, with gold prices at all-time highs, banks may be wary of increasing LTV all the way to 90%,” he added.

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