RBI eases gold lending rules for non-bank finance companies

People seeking loan against gold jewellery can now borrow more, as the Reserve Bank of India (RBI) on Wednesday allowed non-banking finance companies (NBFCs) to lend up to 75 per cent of the value of the metal from 60 per cent at present.

"...it has been decided to raise the LTV (loan-to-alue) ratio to up to 75 per cent for loans against the collateral of gold jewellery from the present limit of 60 per cent with immediate effect," the RBI said.

This, it said, has been done in view of the moderation in the growth of NBFCs' gold loan portfolios in the recent past.

The apex bank further said the value of the jewellery for the purpose of determining the maximum permissible loan amount will be only the intrinsic value of the gold content therein and no other cost elements (like making charges) should be added thereto.

The intrinsic value is arrived in a particular way suggested by the RBI.

NBFCs had raised apprehensions on certifying the purity of the gold jewellery accepted as collateral on grounds that under the current practices it was possible only to arrive at the proximate purity of the gold and that such a certification could lead to dispute with the borrowers.

The RBI, however, clarified that the need to give a certificate on the purity of gold could not be dispensed with. The certified purity should be applied for determining the maximum permissible loan and the reserve price for auction, it said, adding NBFCs can, however, include suitable caveats to protect themselves against disputes on redemption.

The RBI also clarified that the "ownership verification need not necessarily be through original receipts for the jewellery pledged but a suitable document may be prepared to explain how the ownership was determined...".

The KUB Rao Working Group had recommended that the LTV ratio may be increased from 60 per cent to 75 per cent once the business levels of the gold loan NBFCs come to a level considered appropriate.