RBI has proposed new gold loan rules: Do borrowers and lenders need to know – CNBC TV18

The Reserve Bank of India (RBI) on Wednesday (April 9) published a draft regulator structure to lend against gold. The step comes immediately after the Central Bank decides to cut the repo rate, which indicates widespread efforts to fix credit practices and consumer protection.

The draft aims to introduce a harmonious set of rules in all lenders-Banx, NBFCs, Cooperative Banks and Regional Rural Banks (RRBs), which include gold-supported borrowings.

The RBI said that the proposed structure is to strengthen aspects related to conduct and address the concerns appeared in the current borrowing practices.

Major proposals of draft paper:

• The gold loan criteria should be part of the lender’s credit and risk management policy.
• The policies should include single-resistors and regional boundaries for gold loan portfolio.
• Lenders must have clear assessment standards, gold purity check and mechanisms defined to monitor the final use of the loan.
• All loans should be linked to the repayment capacity of the borrower. Proper credit evaluation and proper hard work is mandatory.
• Lenders should make place in the system to monitor loan use and keep evidence on records from time to time.
• Debt renewal and top-up are allowed only when the existing loans are classified as standard and within the loan-to-price (LTV) range.

Restriction on credit:

• Primary gold or silver supported by primary gold, silver, or financial assets cannot be given advance.
• Borrowers cannot take concurrent loans for both consumption and income -generating objectives.
• Lenders should not accept gold with controversial ownership or to accept re -prepared gold as collateral.

Specific limitations and caps:

• The term for bullet repayment loan (consumption loan) is overshadowed in 12 months.
• Cooperative banks and RRBs can only issue bullet repayment loans.
• For loans against gold jewelery and coins, the total weight of pledged gold may not exceed 1 kg per borrower.
• The coins pledged cannot weigh 50 grams of gold or silver.
• Only the gold coins (22 carats or higher) colors sold by banks will be eligible as only mint gold coins. Coins sold by other institutions will not be eligible.

The RBI has invited comments on the draft guidelines from the stakeholders and the public.

The final outline will be informed after review of the response.