RBI: Gold loan finance companies can now give loans up to 75% of the market value of the gold

January 11, 2014

The Reserve Bank of India (RBI) has eased the norms for extending loans against gold jewellery as collateral. It has decided to raise the Loan-To-Value (LTV) cap for loans against the collateral of gold jewellery to 75 % from the present limit of 60% with immediate effect. This means that gold loan companies in India viz. Muthoot Finance, Manappuram Finance, etc can lend up to 75% of the value of gold jewellery deposited with them as guarantee.

The salient features related to RBI’s move to raise Loan-To-Value (LTV):-

Only intrinsic value of gold to be used to determine the loan value.
Non-Banking Finance Companies (NBFCs) will have to certify on purity of gold, which will be used to determine the maximum permissible loan and the reserve price for auction.
The firms can add suitable cautions to protect themselves against disputes on redemption.
Mandatory ownership verification to be done in cases where the gold jewellery pledged is more than 20gm, through a suitable document explaining how the ownership was determined.
Firms have to conduct auction in the same town or taluk, in which the branch that had extended the loan is located.
Disbursement of loans of Rs 1 lakh and above must be done through cheques.

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