The Reserve Bank of India (RBI) declared a increase on gold lending norms, from 75% to 90% on Thursday. Loan-to-value (LTV) ratio for gold loans is raised to 90% by the central bank.
LTV represents the proportion of the valuation of the debt that the investor will fund by the loan.
Gaurav Gupta, CEO, MyLoanCare stated “Once done, customers would be eligible for up to 20% higher gold loan amount against what they are getting currently.”
“So, for gold worth ₹100 you could earlier get a loan amount of ₹75, now you can get a loan amount of ₹90, an increase of 20%”, Gaurav Gupta added.
The Cenral Bank reported in its Statement on Development and Regulatory Policies, It was proposed to raise the allowable loan-to – value ratio for loans against commitments of gold ornaments and jewelry for non – agricultural purposes from 75% to 90%.
“Loan amount is decided at the time of taking the loan therefore, existing borrowers can approach the lender and rebook (prepay and avail again) their loans under new norms if they want to. Gold loans are short-term loans and generally don’t have any prepayment charges,” mentioned by Gupta.
The value of gold loans increased rapidly after the pandemic. Because such loans are protected, interest rates are significantly lower than personal loans.
Raj Khosla, founder and MD, MyMoneyMantra.com, mentioned “This move is done to provide support to people in managing their financial liabilities during this pandemic.”
CVR Rajendran, MD & CEO, CSB Bank, stated that “This is a progressive step and should increase the demand for gold loans. This will put more money in the hands of the borrower. The increase in LTV ratio will help us to grow the book.
According to reports from India’s Association of Indian Bullion Jeweller, on August 6, the gold price stood at about 55,448 for 10 grams.
This upgraded LTV ratio would further allow borrowers to benefit from a higher loan against the same amount of gold.
