Tighter gold loan norms for lenders, 75% value cap

MUMBAI: RBI has moved to tighten oversight of gold-backed lending. In draft pointers launched on April 3, the central financial institution proposed a uniform cap on the loan-to-value (LTV) ratio for gold loans, limiting it to 75% of the collateral’s value. For NBFCs, this ceiling will apply uniformly, no matter whether or not the loan is for consumption or different functions. During Covid, RBI had relaxed norms and allowed as much as 90% loan-to-value ratio for a yr.
RBI additionally known as for larger inside accountability amongst lenders. Banks and NBFCs will likely be required to set their very own LTV limits primarily based on inside danger assessments. A standardised framework for valuing gold collateral is to be launched, with lenders required to reveal the reference value and undertake a uniform methodology for assessing purity, in addition to calculating gross and internet weights. This valuation course of have to be utilized constantly throughout branches and disclosed on the lender’s web site.
“With a view to harmonising such regulations across regulated entities while keeping in view their risk-taking capabilities, and also to address a few concerns that have been observed, it has been decided to issue comprehensive regulations, on prudential norms and conduct related aspects, for such loans,” RBI governor Sanjay Malhotra mentioned. The proposals, a part of RBI’s developmental and regulatory agenda, will likely be finalised after public session.
RBI additionally proposed stricter guidelines for classifying gold-backed loans. Lending selections should prioritise the borrower’s creditworthiness and money circulation wants, moderately than merely the value of the pledged gold. Loans meant for productive functions ought to be categorized by their end-use, not by the character of the collateral.