RBI allows flat repayment of gold loans by RRBs

Customers of gold loans of up to Rs 1 lakh availed from regional rural banks (RRBs) can repay their credit with a one-time payment.

The Reserve Bank of India (RBI) today asked the RRBs to lay down policies for this kind of facility, called bullet repayment, in which lump sum payment is made at maturity instead of being spread over to the life of a loan.

"It has been decided to permit bullet repayment of gold loans up to Rs 1 lakh as an additional option. RRBs are, therefore, permitted to lay down policies with the approval of their board for sanction of gold loan with bullet repayment option...." the RBI said in a notification.

It, however, said that crop loans sanctioned against the collateral security of gold or gold ornaments shall continue to be governed by the existing norms for such loans.

Besides the Rs 1 lakh mark, certain other preconditions have also been laid for allowing bullet repayment.

According to RBI, the period of loans should not exceed 12 months from the date of sanction and the loans shall be governed by current income recognition, asset classification and provisioning norms which shall be applicable once the principal and interest become overdue.

"The bank 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/gold ornament), expected price fluctuations, interest that will accrue during the tenure of the loan, etc," the notification added.