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Home / Money / Personal Finance /  RBI enhances limit for loans against gold to 90%: what does it mean for you?

The Reserve Bank of India (RBI) on Thursday relaxed gold lending norms, allowing lenders to give up to 90% of the value of the gold pledged as loans. Currently, banks can lend up to 75% of the value of gold jewellery and ornaments.

On the day of the monetary policy outcome, the central bank increased the loan-to-value (LTV) ratio for gold loans to 90%. LTV indicates the proportion of the collateral’s value that the lender can finance through the loan.

This will provide better liquidity to cash-strapped borrowers opting for gold loans. The relaxation in LTV will be available on loans availed of till 31 March 2021.

“Once done, customers would be eligible for up to 20% higher gold loan amount against what they are getting currently," said Gaurav Gupta, CEO, MyLoanCare. So, for gold worth 100 you could earlier get a loan amount of 75, now you can get a loan amount of 90, an increase of 20%.

“This move is done to provide support to people in managing their financial liabilities during this pandemic," said Raj Khosla, founder and MD, MyMoneyMantra.com

The relaxed LTV norms will be applicable for new loans. “Loan amount is decided at the time of taking the loan therefore, existing borrowers can approach the lender and rebook (prepay and avail again) their loans under new norms if they want to. Gold loans are short-term loans and generally don't have any prepayment charges," said Gupta.

“The existing customers can also approach the lender to see if a top-up loan is available," said Khosla.

The demand for gold loans has surged significantly after the pandemic set in, as more and more cash-strapped borrowers are opting for gold loans. As these loans are secured, the interest rates are lower compared with personal loans.

Apart from this, the surge in prices of gold has also increased the demand for these loans, as borrowers can avail higher loan against the same quantity of gold.

The domestic as well as the international price of gold has surged to an all-time high. Gold prices have surged over 30% since April this year. The price of 10 grams of gold of 999 purity stood at 55,448 on 6 August 2020 as per the data on Indian Bullion Jeweller’s Association of India.

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