In the view of moderation in the growth of gold loan portfolios of Non-Banking Financial Companies (NBFCs) in the recent past, the Reserve Bank of India (RBI) has allowed NBFCs to lend against gold jewellery up to 75 percent of Loan-To-Value (LTV) of metal from 60 percent at present.
The RBI further noted that 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 excluding the other cost elements such as making charges. Further, the central bank clarified the need to give a certificate on the purity of gold cannot be dispensed. The certified purity should be applied for determining the maximum permissible loan and the reserve price for auction.
The NBFCs can include suitable caveats to protect themselves against disputes on redemption. Earlier, NBFCs had raised concerns over certification of the purity of gold jewellery accepted as collateral and underscored that under the current practices it was possible only to arrive at the proximate purity of the gold and such a certification could lead to dispute with the borrowers.
The RBI further noted that 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 excluding the other cost elements such as making charges. Further, the central bank clarified the need to give a certificate on the purity of gold cannot be dispensed. The certified purity should be applied for determining the maximum permissible loan and the reserve price for auction.
The NBFCs can include suitable caveats to protect themselves against disputes on redemption. Earlier, NBFCs had raised concerns over certification of the purity of gold jewellery accepted as collateral and underscored that under the current practices it was possible only to arrive at the proximate purity of the gold and such a certification could lead to dispute with the borrowers.
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