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Pledged gold to fetch more

RBI raises the loan-to-value ratio in gold loans for non-agricultural purposes to 90 per cent from 75 per cent
Gold loan is an easy product and people can avail this loan over the counter within 30 minutes.

Our Special Correspondent   |   Mumbai   |   Published 07.08.20, 05:16 AM

Individuals can now borrow more against their gold jewellery.

The RBI on Thursday raised the loan-to-value (LTV) ratio in gold loans for non-agricultural purposes to 90 per cent from 75 per cent.

LTV is the proportion of the collateral value which can be financed. Thus, an LTV of 75 per cent means that banks and non-banks can lend up to 75 per cent of the value of the gold ornaments or jewellery pledged by an individual. This has now been raised to 90 per cent.

The central bank expects this enhanced LTV ratio will help borrowers tide themselves over their temporary liquidity mismatches on account of Covid  19. However, this relaxation will be available till March 31, 2021.

“Gold loan is an easy product and people can avail this loan over the counter within 30 minutes. At the same time banks and NBFCs will have to have strong risk management to ensure this easing is used effectively,’’ Saurabh Kumar, head of gold loans at IIFL Finance, said.

Non-banking finance companies and banks have a major share of the organised gold loan market.

Recently, IDBI Bank had announced the launch of four specialised gold loan branches as it looked to cash in on more individuals taking such loans. Equitas Small Finance Bank is also offering gold loans through easy documentation and instant cash. It is giving loans with an average ticket size in the range of Rs 30,000 to Rs 40 lakh. The maximum tenure for any scheme is 24 months.

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