In a big relief to gold loan companies, the Reserve Bank of India has decided to raise the loan-to-value (LTV) cap for loans against the collateral of gold jewellery to 75 per cent from the present limit of 60 per cent with immediate effect.
This effectively means gold loan finance companies can now give loans up to 75 per cent of the market value of the gold. 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. The Working Group had also recommended standardisation of the methodology of determining the value of gold, the RBI said in a circular on Wednesday.
The easing of norms comes in the wake of the moderation in the growth of gold loan portfolios of NBFCs in the recent past, and also taking into consideration the experience so far.
Gold loan companies were also clamouring for relaxation in the rules in the wake of the slowdown in their business. The RBI slapped the 60 per cent LTV cap last year in the wake of the explosive growth in the gold loan business.
The RBI further clarified that 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 should be added. The need to give a certificate on the purity of gold cannot be dispensed with. The certified purity should be applied for determining the maximum permissible loan and the reserve price for auction, the RBI said.