RBI Relaxes Cap On Loans Against Pledged Gold

The Reserve Bank of India has relaxed the ceiling of Rs one lakh on loans for non-agricultural purposes against pledged gold and has left it to the banks concerned to decide on it.

"Banks, as per their board-approved policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end uses," the RBI said in a circular.
It retained the loan-to-value ratio at 75% of the value of gold and the tenor of the loan to one year.

The RBI had limited lending against pledged gold to Rs one lakh in December 2013 and after a month limited the loan-to-value ratio at 75%. It clarified that interest will be charged to the account at monthly rates and may be recognised on accrual basis, provided the account is classified as 'standard.'

The step is likely to help commercial banks increase their retail secured lending portfolio. Many large commercial banks, including leading public sector lenders, had actively used this channel, popularised by a few south-based non-banking finance companies.