Loans will be granted only for 22-carat gold
Recently, the Reserve Bank of India (RBI) introduced nine new guidelines outlining the procedures for banks and non-banking financial companies (NBFCs) to issue gold loans to individuals. In this article, let’s take a closer look at these guidelines.
These guidelines were drafted to bring uniformity to the rules and regulations for availing gold loans from banks and NBFCs.
- Loan-to-Value (LTV) Ratio:
The LTV ratio is capped at 75%. This means that if the value of the gold jewellery is ₹100, the lender can offer a maximum loan of ₹75. - Ownership Proof of the Jewel:
The borrower must provide proof that the jewel belongs to him or her. If the jewel does not directly belong to the borrower, supporting documentation must be provided to establish how the jewel is related to them. If such proof is not provided, the lender has the right to deny the loan. - Gold Purity Certificate:
The lender (bank or NBFC) must provide a gold purity certificate to the borrower and retain a copy for their records.
- The certificate should include key details such as the gross weight and value of the jewel, the presence of stones or bronze, and the net weight excluding these elements.
- It must also specify whether the jewel has any visible damage.
- A photograph of the jewel must be attached to the certificate.
- The certificate must be signed by both the lender and the borrower.
- Eligible Gold Types:
Loans will only be provided against specific types of gold permitted by RBI guidelines. Only 22-carat gold coins purchased from banks are eligible. Loans will not be granted against gold ETFs, mutual fund units, raw gold, semi-finished or unfinished gold, or gold in bar form. - Silver Loan Guidelines:
Similar to gold, silver loans will only be provided for silver items permitted by the RBI. Loans will be issued only for silver coins released by the RBI, with a minimum purity of 925. Loans will not be granted against silver ETFs or mutual funds. - Maximum Gold Limit per Individual:
An individual can pledge up to a maximum of 1 kilogram of gold for a loan. - Carat-Based Loan Valuation:
Loans will be granted only for 22-carat gold. If the pledged jewellery is of lower purity, the lender will convert its value to the 22-carat equivalent and determine the loan amount accordingly. - Loan Agreement Details:
The loan agreement must include complete details of the pledged jewel, such as:
- The value of the jewel, including its weight and assessed monetary value.
- Clear auction terms: If the pledged jewel is not reclaimed, it may be auctioned. The agreement should specify the repayment timeline, the deadline for reclaiming the jewel, and the auction process. If the jewel is sold for an amount higher than the loan amount, the agreement should clearly state how much will be refunded to the borrower, from the surplus.
- Any outstanding amount payable by the borrower, including the exact amount and applicable charges, must also be mentioned.
- Return of the Jewel:
Once the borrower has cleared all dues, the bank or NBFC must return the pledged jewel within seven working days. Failure to do so will result in a penalty of ₹5,000 per day, which must be paid to the borrower at the time of returning the jewel.
