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RBI revises LTV for gold loan NBFCs to 75% from 60%

In March 2012, RBI introduced LTV cap of 60% for loans granted against the collateral of gold jewellery to de-risk the NBFCs from the volatility in gold prices

January 09, 2014 8:49 IST | India Infoline News Service
Considering the suggestions made in the KUB Rao committee report, Reserve Bank of India (RBI) has revised the loan-to-value (LTV) cap for gold loan non-banking financial companies (NBFCs) to 75% this quarter from 60%.

The KUB Rao committee has suggested a review of the cap on the loan-to-value ratio (LTV) of gold-loan NBFCs. It is in favour of raising the cap gradually. Currently, the ratio for gold loans by NBFCs is capped at 60%.

"As gold loan NBFCs have already braced for conforming to all regulatory stipulations, the 'loan to value ratio' can be broadly increased to 75 per cent," said the report.

Last week, RBI released the KUB Rao committee report on revision in gold loan rules and introduction of gold-backed products. The objective is to discourage investments in bullion, bars and jewellery, and curb gold imports. The public can comment on the report till 18 January.

The RBI also clarified that “making charges” cannot be included in the value of gold to be kept as collateral. “The value of the jewellery for the purpose of determining the maximum permissible loan amount will be only the intrinsic value of the gold content therein and no other cost elements should be added thereto,” RBI said.

In March 2012, RBI introduced LTV cap of 60% for loans granted against the collateral of gold jewellery to de-risk the NBFCs from the volatility in gold prices.

Subsequently, RBI also issued several guidelines with regard to processing and disbursal of loan and auctioning of pledged gold.

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