CURRENT AFFAIRS
CURRENT AFFAIRS
Description
The Reserve Bank of India (RBI) has released draft guidelines for gold loans that will come into effect from January 1, 2026. These regulations are introduced to curb the growing problem of non-performing assets (NPAs) associated with gold loans, which have risen due to soaring gold prices and increasing loan demand across the country. The guidelines aim to promote responsible lending practices and safeguard the interests of both lenders and borrowers.
Reasons For New Guidelines
The RBI’s move to revise gold loan regulations addresses the escalating NPAs in this segment, which stood at Rs 4,784 crore as of December 2024, marking a rise compared to the previous year. The new rules seek to standardize the lending process and ensure loans are secured against legitimately owned and accurately valued gold assets.
Loan-to-Value (LTV) Ratio Cap
The RBI has capped the maximum loan-to-value ratio for consumption gold loans at 75%. This means that the loan amount granted cannot exceed 75% of the assessed value of the pledged gold, helping prevent over-borrowing and mitigating risk for lenders.
Gold Valuation And Assaying
Financial institutions must follow standardized procedures to evaluate the purity of the gold used as collateral. Only certified assayers are authorized to carry out this assessment, and borrowers must be present during the process. The valuation will be based on the price of 22-carat gold, with adjustments made for lower purity items.
Verification Of Ownership
Loans will not be approved against gold jewellery with dubious ownership. Borrowers are required to provide evidence of ownership, such as original purchase receipts or legal declarations, to qualify for a loan.
Differentiating Loan Types
The RBI distinguishes between consumption loans and income-generating loans. Lenders are expected to monitor funds disbursed for income-generating purposes, while consumption loans will have specific limits on their duration. Bullet repayment loans will be restricted to a maximum tenure of 12 months.
Limits On Pledging Gold And Silver
The guidelines set limits on the amount of gold or silver an individual borrower can pledge. The maximum weight allowed is 1 kilogram for gold, with an additional limit of 50 grams for gold coins. For silver coins, the cap is 500 grams. These measures aim to reduce risks related to money laundering and excessive exposure to a single asset class.
Restrictions On Re-pledging
Lenders are prohibited from issuing new loans against gold that has already been pledged and used as collateral for another loan unless all previous dues on that gold have been cleared. This prevents repeated borrowing against the same asset, reducing financial risk.
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