The Reserve Bank of India (RBI) on Thursday announced a relaxation on loan-to-value (LTV) ratio for gold loans from 75 percent to 90 percent. LTV ratio basically refers to the amount of loan a borrower can get against gold as a collateral.
“The relief will be applicable till March 31, 2021,” RBI Governor Shaktikanta Das said while announcing the decisions taken by the central bank’s Monetary Policy Committee (MPC).
With a view to further mitigate the economic impact of the COVID-19 pandemic on households, entrepreneurs and small businesses, it has been decided to increase the permissible loan to value ratio for loans against pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent, the cenral bank said in its Statement on Developmental and Regulatory Policies.
A detailed guidelines on this will be issued by RBI later on Thursday.
The earlier guidelines said the loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75 percent of the value of gold ornaments and jewellery.
“This announcement will improve credit flow to those with poorer credit profiles. A higher LTV ratio would not only help borrowers avail higher loan amount, it may also provide relief to the existing gold loan borrowers in case of any steep correction in the gold prices in the near term,” said
Naveen Kukreja- CEO and Co-Founder, Paisabazaar.
“This announcement will give the SME and small business borrowers the much-needed liquidity in this unprecedented pandemic situation. Households will be able to get more funds by taking a loan and not be forced to sell gold to get more liquidity,” added Divam Sharma, Founder, Green Portfolio, a Portfolio Management Services.
Meanwhile, the RBI opted for a status quo and left interest rates unchanged, but maintained an accommodative stance, implying more rate cuts in future if the need arises to support the economy hit by the COVID-19 crisis. The benchmark repurchase (repo) rate has been left unchanged at 4 percent.(With inputs from PTI)