RBI allows bullet repayment of gold loans by banks

The central bank has eased norms for gold loans for non-agricultural purposes by banks, allowing bullet repayment of loans extended against pledge of gold ornaments and jewellery up to Rs 1 lakh.

One-time repayment for such loans was not allowed by such gold loans till now.

RBI said that banks should prescribe a minimum margin to be maintained in case of such loans and accordingly fix the loan limit taking into account the market value of the security (gold ornaments), expected price fluctuations, interest that will accrue during the tenure of the loan etc.

“The account would be classified as non-performing asset (sub-standard category) even before the due date of repayment, if the prescribed margin is not maintained,” added RBI.

It said the period of such loans shall not exceed 12 months from the date of sanction and the interest will be charged to the account at monthly interval but will become due for payment along with principal only at maturity.

Banks shall recognise interest income on such loans in their profit and loss account only on collection.

Such loans shall also be governed by other norms pertaining to income recognition, asset classification and provisioning which shall be applicable once the principal and interest become overdue.

The move is in response to suggestions from banks and with a view to ensuring a level-playing field among various market participants, according to RBI.

Banks compete with specialised gold loan firms such as PE-backed Muthoot Finance and Manappuram Finance.

(Edited by Joby Puthuparampil Johnson)

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