RBI Relaxes Loan-to-Value Ratio for Gold Loans: What's Need to Know

Last year, the Reserve Bank of India or the RBI produced some new guidelines for gold loans in India. According to the circular, the RBI relaxed the norms for lending the loan by increasing the permission Loan-to-Value ratio (LTV) for gold loans from 75% to 90%. As per the RBI guidelines for gold loans, lenders, whether banks or non-banking financial corporations were allowed to give up to 90% of the value that the gold jewellery has. However, the only criterion that they had to strictly make sure of was that the loan against gold jewellery was for non-agricultural purposes. The new RBI guideline was welcomed by all the banks, non-banking financial corporations (NBFCs), and even borrowers. The change in the loan-to-value ratio for gold loans in India is a boon to the borrowers for whom paying personal or business loans is difficult. With the amendment in the LTV value, borrowers got the chance of availing a higher amount of loan against the same quantity of gold. Lenders, be it banks or NBFCs, were positive about this RBI guideline on gold loan auction as the move helped in the expansion of the industry while increasing their gold loan books.

RBI Guideline for Gold Loans: How did the Amendment Help Borrowers and Lenders?

According to the new rule for gold loans levied by the Reserve Bank of India, change in the loan-to-value ratio was aimed to help the cash-strapped borrowers to wave over their liquidity mismatches that had arisen due to the COVID-19 pandemic. Today, many small businesses and MSMEs require the right capital for restarting their business operations that were down due to the pandemic. Gold loan is one of the best ways to ensure quick capital in case of financial emergencies. Add to that, Muthoot Finance gold loans are available at low-interest rates, making it even easier for customers to avail financial assistance. The new guideline that RBI announced last year helped many people access more capital with ease and restart their businesses without taking any obligations from anyone.

Coming to the benefits that the latest RBI circular on gold loans gave to the lenders; the increase in the loan-to-value ratio helped people get more cash while it helped banks and non-banking financial corporations grow their gold loan books. However, with the move of broadening the gold loan market, the competition also increased in the segment. Because of this, lenders, whether banks or NBFCs, had to ensure that their risk management and valuation processes remained robust. When the new rules for gold loans were released, the price of gold was sky-high; any fall in the prices could have led to default. Although it was overwhelming for banks and non-banking financial corporations at first, they carefully and gradually implemented the new norm that RBI issued. The leverage or relaxation in the loan-to-value ratio for gold loans in India was applicable till 31st March 2021. With the country unlocking and businesses adjusting to the new normal, most of them have re-established their operations with the help of gold loans.

RBI Guidelines for Gold Loan Auction: Why Gold Loan is Beneficial?

There are many reasons why gold loans are preferred. Some of the best benefits of availing the gold loan are as follows:

• Faster Processing

  Gold loans fall under the secured loans category, which makes the eligibility criteria quite viable. In fact, gold loan formalities are minimal; it is not mandatory to have a credit score for loan approvals, allowing the loan to get processed faster. Many non-banking financial corporations (NBFCs) offer online facilities as well for availing gold loans, making the process even quicker and convenient.

• Low-Interest Rates

  One of the most important benefits – the gold loan interest rate in India is very low, compared to other unsecured loans. Here, your gold jewellery acts as the collateral; however, you can attach additional collateral as well if you want to lower the interest rate further.

• No Processing and Foreclosure Fees

  Non-banking financial corporations like Muthoot Finance or even banks for that matter levy zero processing fees on loans against gold jewellery. Even if the fee is applied, it is just 1%. Similarly, no foreclosure is charged on gold loans and if applied, the charge is as low as 1%.

• No Income Proof Needed

  For gold loans in India, income proof is usually not required as it is secured by gold ornaments. Therefore, those planning to start a business can also apply for a gold loan without a second thought.

  Lenders give gold loans at not only low-interest rates but also at flexible tenures and repayment options. It is one of the most preferred ways of getting instant capital in case of business or financial needs. Make sure that you choose the right lender for making the most of your gold loan.