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Now, borrow more by mortgaging gold ornaments. Here's how

Wed Oct 14 2020


In a bid to offer some relief to borrowers amid the pandemic, the Reserve Bank of India in its August Monetary announced that individuals who have taken a personal loan but have been unable to service it in time since 31st March 2020, now have ab opportunity to restructure it. Further, individuals were also given the opportunity to get more money on gold loan borrowings.


During the lockdown, the value of gold increased tremendously and RBI even increased the LTV or loan to value ratio to 90%. So, while earlier, a deposit of Rs 1 lac of Gold may fetch you a loan of Rs 60,000-75,000, now it can fetch you a loan of Rs 90,000.


Loan up to 90 per cent of the value of gold jewellery:


The central bank announced that lending institutions like banks and non-banking finance companies (NBFCs) could lend up to 90 per cent of the value of gold jewellery, raising the cap from 75 per cent earlier. The bank said, "As per the extant guidelines, loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75 per cent of the value of gold ornaments and jewellery."


"With a view to further mitigate the economic impact of the coronavirus pandemic on households, businessmen and small businesses, it has been decided that the permissible loan to value ratio (LTV) for loans against pledge of gold jewellery for non-agricultural purposes will be increased from 75 per cent to 90 per cent," it added.



According to the RBI, this relaxation will be valid only till March 31, 2021. Given that the higher LTV is only till March 31 next year, the risk on the portfolio is for a limited period.


Gold price correction:

This move announced by RBI made gold loans attractive further. However, gold prices have corrected sharply in the last two months. MCX Gold spot prices have corrected from all-time high levels of Rs 56,300 per 10 gram to nearly Rs 51,000 levels now.


While the correction in gold prices reduces the loan amount that a person can borrow, for existing gold loan borrowers, who borrowed loan when gold was at all-time highs, this is a matter of concern as they may be asked to make part payment by their bank if prices correct further from present levels. Experts say this may lead to unnecessary disputes and create pressure for the borrower to arrange additional margin.


Planning to take a gold loan? Consider this first

For instance, if you have mortgaged 100 gm gold jewellery with the bank and the bank has valued your gold at Rs 4 lakh and has given you a loan of Rs 3.6 lakh (at 90% LTV) and gold prices fall to say Rs 47,700 level, then your bank may ask you to deposit additional 10-gram gold as margin or may ask you to repay Rs 40,000 of loan amount. This is why borrowers need to be cautious while taking a gold loan. It is advised not to take the entire allowed amount as loan against mortgaged gold so that if prices of the yellow metal fall you will have some cushion.