Mumbai: The Reserve Bank of India (RBI) has increased the loan-to-value (LTV) ratio for non-banking financial companies (NBFCs) lending money using gold as a collateral.

In a notification, the central bank said these companies can give loans of as much as 75% of the value of the gold kept as collateral compared with 60% earlier.

“In view of the moderation in the growth of gold loan portfolios of NBFCs in the recent past, and also taking into consideration the experience so far, it has been decided to raise the LTV ratio to up to 75% for loans against the collateral of gold jewellery from the present limit of 60% with immediate effect," RBI said.

Increasing the LTV on gold loans “to facilitate monetisation of idle gold" was also a recommendation of a working group set up by RBI in 2012 under the chairmanship of K.U.B. Rao, an adviser in the central bank’s department of economic and policy research.

The RBI also clarified that “making charges" cannot be included in the value of gold to be kept as collateral. “The value of the jewellery for the purpose of determining the maximum permissible loan amount will be only the intrinsic value of the gold content therein and no other cost elements should be added thereto," RBI said.

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