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RBI relaxes gold loan ceiling for non-agriculture purposes

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The Reserve Bank of India (RBI) on Tuesday relaxed the Rs one lakh ceiling on loans against gold jewellery.

Borrowers can now pledge their gold and get a higher value of loans, provided that the loan-to-value (LTV) ratio does not exceed 75% of the cost of the gold. But these loans have to be for non-agriculture purposes. The move is expected to monetise the household gold holdings in India by encouraging people to bring out their gold holdings.

"Banks, as per their board approved policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end uses," RBI said in a notification.

In December 2013, RBI had stipulated a ceiling of Rs 1 lakh and a bullet repayment of loans clause -- that means payment of both the interest and the principal at one go.

RBI said in the release, "We have received representations from banks requesting to increase the prescribed ceiling and to review other conditions applicable for non-agricultural loans against pledge of gold ornaments and jewellery, where both interest and principal are payable at maturity of the loan, especially in view of introduction of LTV ceiling for such loans."

"The LTV of 75% should be maintained throughout the tenure of the loan for all loans extended against pledge of gold ornaments and jewellery for non-agricultural end uses. The LTV ratio shall be computed against the total outstanding in the account, including accrued interest, and current value of gold jewellery accepted as security/collateral," RBI said. This effectively means that any point of the tenure of the loans the LTV ratio should not exceed 75% of the value of the collateral.

George Alexander Muthoot, managing director of Muthoot Finance Ltd, said in a statement that the apex banks's view to maintain the LTV for bank's gold loans for non- agricultural end uses shows that the regulators want to shape up this emerging sector, giving level-playing field to all players -- be it banks or gold loan NBFCs. "This will also protect the interest of the customers who can continue to opt for gold loans based on merits of the player rather than purely based on LTV ratios," said Muthoot.

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