In a major relief to both consumers and banks, the Reserve Bank of India (RBI) has waived off the 1 Lakh limit on loan that banks can sanction against the pledging of gold ornaments and jewellery, and where the end use of the loan is not for agricultural purposes. The easing of the rule follows a representation that RBI received from banks requesting an increase in the approved ceiling and to analyze other conditions applicable to such loans, where both principal and interest are payable at maturity of the loan.
The RBI has however limited the Loan to Value (LTV) ratio at 75 percent of the value of the gold. The Central Bank has left the decision of lending limits to individual banks. The RBI draft in this regard states – “Banks, as per their Board approved policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end uses”. The circular went on to add that tenure of all such loans shall not exceed 12 months from the sanction date.
