RBI eases gold loan norms — you can now borrow more against gold jewellery

• The RBI governor announced that the permissible loan to value ratio (LTV) for gold loans is now increased from 75 to 90%.
• Shares of Muthoot Finance and Manappuram Finance rallied over 5% in reaction to RBI Governor’s statement.
• Check out the latest news and updates on Business Insider.

In a move that brings some relief for stressed borrowers, the Reserve Bank of India has eased gold loan guidelines. RBI Governor Shaktikanta Das announced that the permissible loan to value ratio (LTV) for gold loans has been increased from 75 to 90%.

Borrowers can now unlock more value, as their gold jewellery will fetch more money that it did previously. The gold futures were trading at the lifetime highs of ₹55,500, today.

“With a view to mitigating the impact of COVID-19 on households, it has been decided to increase the permissible loan to value ratio (LTV) for such loans to 90%,” said Shaktikanta Das, the RBI governor.

And, this relaxation shall be available till March 31, 2021, he said.

Das further added that “As per extant guidelines, loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75% of the value of gold ornaments and jewellery.”

The loan to value is one of the key risk factors that lenders assess before approving a mortgage.

Shares of Muthoot Finance and Manappuram Finance rallied over 5% in reaction to the statements. However, later in the trading session they pared their gains to end lower. Muthoot Finance is the largest gold loan non-banking financial company in India.

“This is a liquidity booster step by RBI during the economic crisis of Covid-19. Now gold loan customers can take a higher amount of loan against their gold security. This step will expand Industry, however all gold loan companies shall strengthen their risk processes, as gold prices are going to be volatile from hereon,” said Amit Jain, Ashika Wealth Advisors.

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