The Reserve Bank of India (RBI) on Thursday announced that lending institutions like banks and non-banking finance companies (NBFCs) could now lend up to 90 per cent of the value of gold jewellery, raising the cap from 75 per cent earlier. The RBI increased the LTV (loan-to-value) ratio on gold loans to provide relief to borrowers looking to take gold loans to mitigate the financial exigencies caused by the coronavirus crisis. Here’s what you must know:
RBI statement on gold loan
The RBI said: “As per the extant guidelines, loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75 per cent of the value of gold ornaments and jewellery. With a view to further mitigate the economic impact of the coronavirus pandemic on households, businessmen and small businesses, it has been decided that the permissible loan to value ratio (LTV) for loans against pledge of gold jewellery for non-agricultural purposes will be increased from 75 per cent to 90 per cent.
Validity of the relaxation
According to the RBI, the relaxation will be valid only till March 31, 2021.
What is gold loan?
A gold loan is loan that you take against gold. It is a secured loan where gold articles such as gold jewellery, bullion, etc, are taken as collateral by the lending bank/NBFC.
The loan is given to the borrower against this gold as collateral.
What are the benefits of going for a gold loan?
A gold loan is similar to a personal loan in meeting your immediate financial requirements, be it an international education, marriage expenses, covering medical emergencies or any other personal use. However, unlike a personal loan, this is secured loan with your gold article as collateral, and bears a lower interest rate.
Quick processing: Gold loans require minimal documentation, thanks to its secured nature, which leads to faster processing.
Flexibility: Since there is no monitoring of end use, it gives you the flexibility to use the loan for any type of expense.
Secured loan type: You are not required to submit any other security/collateral to the lender other than the pledged gold ornaments.
Lower interest rate: Interest rates on gold loans are on the lower side when compared to personal loan, since gold serves as collateral.
Liquidate idle asset: An idle asset, gold is seldom used for generating money. Hence, gold loan is the perfect solution to raise capital and use the fund when you require money to meet your financial needs. It is also more secure in the confines of a bank’s or a financial institution’s lockers than your own home.