NEW DELHI : Gold loan customers will be able to borrow up to 90% of the value of the yellow metal compared to the existing 75%, the central bank said. The move comes as a relief to cash-strapped borrowers looking for such loans. The increased loan-to-value (LTV) ratio—the proportion of the collateral’s value a lender can give out as loan—will be available till 31 March 2021.
On 2 August, Mint reported that growing economic uncertainty in the wake of the coronavirus outbreak led to a surge in demand for gold loans, with lenders witnessing up to 30% growth in disbursal.
“Once done, customers will be eligible for up to 20% higher gold loan amount versus what they are getting currently," said Gaurav Gupta, CEO, MyLoanCare, a marketplace for loan products.
The new LTV norms will be applicable only for new loans. “Loan amount is decided at the time of taking the loan, therefore, existing borrowers can approach the lender and rebook (prepay and avail again) loans under new norms. They are short-term loans and generally don’t have any prepayment charges," he said.
“This move will provide support to people in managing their financial liabilities during the pandemic," said Raj Khosla, founder and MD of financial services firm MyMoneyMantra.com.
The over 30% rise in prices since April resulted in higher demand for gold loans as customers could borrow more for the same quantity. Prices hit ₹55,448 per 10 gm on 6 August, as per Indian Bullion and Jewellers Association.
While RBI has increased the regulatory cap on gold loan LTV ratios, banks are free to set their own LTV ratios within the regulatory cap depending on their view on the gold price trajectory, risk margin requirements and credit risk assessment of applicants. “Given the gold prices have already risen by 40% in this year, some banks may take a more conservative view while setting the LTV ratios," said Naveen Kukreja, CEO and co-founder, Paisabazaar.com, an online market place for financial products.
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