Gold Loan Rule Changed: By September 30, loans given by banks against gold mortgage reached Rs 1.4 lakh crore, showing an increase of 51 per cent on an annual basis.
Gold Loan Rule Changed: The Reserve Bank of India (RBI) has identified some important facts in the system of giving gold loans, after which there have been major changes in this sector. According to a report by the Times of India, lenders are now moving from traditional bullet repayment options to EMI and term loans to overcome regulatory issues.
RBI found irregularities in giving gold loans
RBI has reported irregularities in giving loans against gold jewelery and jewelery on 30 September. These included gaps in loan sourcing, valuation processes, monitoring of end use funds, auction transparency and compliance with loan-to-value (LTV) ratio norms.
The report said that the Central Bank has also criticized the practice of partial payments and loan rollover, besides warning of possible error. A senior banking official said, RBI’s order clearly states that it wants lenders to thoroughly check the borrower’s repayment capabilities and not depend only on collateral (asset).
What is the current model of gold loan?
At present, gold loans mainly follow the bullet repayment model. Here borrowers pay the entire principal and interest at the end of the loan. Alternatively, partial payments are accepted during the period. However, to reduce the risk, RBI is insisting on immediate EMI-based repayment options.
The gold loan sector has seen tremendous growth recently, due to the rising price of gold and limited access to unsecured credit. According to Crisil, retail loans issued by banks against gold grew by 37 per cent between April and August this year. According to the report, NBFCs focused on gold loans have increased assets under management by 11 per cent in the first quarter of the financial year 2024-25.
According to TOI, Prakash Agarwal, partner at Gefion Capital, has alerted that the possible correction in gold prices is not good, as falling collateral value may lead to challenges like refinancing and if this happens, repayment capacity will be under pressure.
The report also said that as of September 30, loans given by banks against gold reached Rs 1.4 lakh crore, showing a growth of 51 per cent year-on-year. Scientists believe that if RBI tightens the rules, this growth may stop or slow down as lenders are cautious about staying away from more risk.