BackBanks can lend more than `1 lakh against gold jewellery
Your bank can now decide how much it can lend to you against your gold jewellery and ornaments
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You will soon be able to get bigger loans from a bank against gold jewellery that you may want to pledge. Last week, the Reserve Bank of India (RBI) relaxed the ceiling for loans against gold jewellery for banks. Here is a look at what this means.
What is the change?
So far banks were allowed to lend only up to 1 lakh to an individual who takes a loan against gold jewellery for personal or business use. This cap was put in place on 30 December 2013. However, the recent RBI circular in this regard states that banks, according to their Board approved policies, may decide upon the ceiling on the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end usage. In simpler terms, this means that your bank can now decide how much it can lend to you against your gold jewellery and ornaments, depending on the limit approved by its Board. However, the caveat is that the tenor of the loan cannot exceed 12 months from the date of sanction.
Why the change?
The banks had approached the central bank requesting it to increase the prescribed ceiling and to review other conditions applicable for non-agricultural loans against the pledge of gold ornaments and jewellery. Hence, due to an appeal from the banking industry, RBI decided to remove the cap on the amount that can be lent to customers as loan against gold.
What it means
A majority of the loans that are taken against gold jewellery as collateral tend to be of smaller in sizeāin the range of 50,000-1 lakh. Now with RBI permitting banks to set their own ceiling for the loan amounts, banks are likely to increase the limit. The quantum of the loan amount will vary from bank to bank. With this change, banks and non-banking finance companies (NBFCs) are now at par when it comes to the amount that they can lend. The loan-to-value ratio (LTV), or the amount financial institutions can lend at a certain percentage of the value, is fixed at 75% of the value of gold for both NBFCs and banks.
Before taking a loan, besides the loan amount a financial institution can lend and LTV ratio, factor in other aspects such as interest rate and processing charges. Interest rates vary across financial institutions. Generally, interest rates for gold loans offered by NBFCs are in the range of 15-24%. Interest rates on gold loans offered by banks are usually lower, 11-18%.
Make sure you check the additional costs such as processing fees, which can be 0.025-1.5% of the loan amount. The penalty for late payment is typically 2% per annum of the loan amount.
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