Banks to set ceiling for loans against gold for non-agri use

The Reserve Bank of India (RBI) on Tuesday allowed banks to decide upon the ceiling regarding the quantum of loans that might be granted against gold for non-agricultural end uses. However, the regulator said banks would continue to maintain a loan-to-value (LTV) ratio of 75 per cent against the pledged gold.

"Banks, as per their board approved policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end uses," said RBI Tuesday.

RBI also said the tenor of the loans shall not exceed 12 months from the date of sanction. Besides, RBI asked banks to charge interest to the account at monthly rests. "Interest will be charged to the account at monthly rests and may be recognised on accrual basis provided the account is classified as 'standard' account. This will also apply to existing loans," said RBI.

According to RBI such loans shall be governed by extant norms pertaining to income recognition, asset classification and provisioning which shall be applicable once the principal and interest become overdue.

Regarding calculation of LTV, RBI said it should be computed against the total outstanding in the account, including accrued interest, and current value of gold jewellery accepted as security/collateral.

In the past, RBI had received representations from banks requesting to increase the prescribed ceiling and to review other conditions applicable for non-agricultural loans against pledge of gold ornaments and jewellery, where both interest and principal are payable at maturity of the loan.