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RBI standardises gold loan guidelines

If the gold is of purity less than 22 carats, the bank should translate the collateral into 22 carat and value the exact grams of the collateral, RBI says

January 21, 2014 8:53 IST | India Infoline News Service
The Reserve Bank of India (RBI), on Monday, said that it had been decided to prescribe a loan-to-value (LTV) ratio of not exceeding 75 per cent for banks’ lending against gold jewellery, including bullet-repayment loans against pledge of gold jewellery.

“As a prudential measure, it has been decided to prescribe a Loan to Value (LTV) Ratio of not exceeding 75 per cent for banks’ lending against Gold jewellery (including bullet repayment loans against pledge of gold jewellery). Therefore, henceforth loans sanctioned by banks should not exceed 75 per cent of the value of gold ornaments and jewellery,” the RBI said in a notification to all banks.

“In order to standardize the valuation and make it more transparent to the borrower, it has been decided that gold jewellery accepted as security/collateral will have to be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd, the RBI added.

“If the gold is of purity less than 22 carats, the bank should translate the collateral into 22 carat and value the exact grams of the collateral. In other words, jewellery of lower purity of gold shall be valued proportionately,” it said further.

It is reiterated that banks should continue to observe necessary and usual safeguards and also have a suitable policy for lending against gold jewellery with the approval of their Boards of Directors, the RBI further said.

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