RBI hikes gold loan limit for UCBs to Rs 2 lakh

Mumbai: The Reserve Bank has raised the limit for urban co-operative banks (UCBs) to sanction loan against gold collateral to Rs 2 lakh from Rs 1 lakh at present. "...it has been decided to increase the quantum of loan that could be granted under the scheme, from Rs 1 lakh to Rs 2 lakh," RBI said in a notification.

The urban co-operative banks are allowed to give gold loan under the bullet repayment scheme. The bullet repayment scheme allows the UCBs to sanction loan only on conditions that the period of loan shall not exceed 1 year from the date of sanction and interest will be charged at monthly rests but will become due for payment along with principal only at the end of 12 months from the date of sanction.

Among others, banks should maintain a Loan to Value (LTV) ratio of 75 per cent on the outstanding amount, including the on an ongoing basis, failing which the loan will be treated as a Non Performing Asset, RBI said. UCBs are expected to take necessary and usual safeguards and also have a suitable policy for lending against gold jewellery with the approval of their boards of directors, RBI said.