Mumbai: The Reserve Bank of India (RBI) on Tuesday removed the ceiling on the quantum of loans that can be given against pledged gold ornaments, where the end-use of funds is not for agricultural purposes.

Banks are now free to set their own lending caps as per their board-approved policies, RBI said in a notification on its website.

On 30 December, the central bank had stated that the amount of loan sanctioned should not exceed Rs1 lakh at any point of time for such loans. In its notification, RBI stated that it had received representations from banks requesting an increase in the prescribed ceiling and to review other conditions applicable for non-agricultural loans against pledge of gold ornaments.

According to the norms set by RBI, the period of the loan shall not exceed 12 months from the date of sanction.

“Interest will be charged to the account at monthly rests and may be recognised on accrual basis provided the account is classified as ‘standard’ account. This will also apply to existing loans," RBI said in the notification.

The banking regulator also stated that the loan-to-value ratio needs to be fixed at 75% through the duration of the loan.

“RBI’s view to maintain the loan-to-value for bank’s gold loans for non-agricultural end uses is a fair one and it shows that the regulators want to shape up this emerging sector for long term giving level playing field to all players may it be banks or gold loan NBFCs (non-banking financial companies)," George Alexander Muthoot, managing director, Muthoot Finance, said in a statement.