RBI Raises Gold Loan Limit to Boost Small Borrowers

The Reserve Bank of India plans to increase the loan-to-value ratio for loans against gold for amounts under Rs 2.5 lakh, raising it from 75 to 85 percent. Governor Sanjay Malhotra emphasized that both principal and interest are considered in this change, aimed at minimizing risks in gold lending.

The Reserve Bank of India is poised to enhance lending options for small borrowers by increasing the loan-to-value (LTV) ratio for lending against gold. Previously set at 75 percent, the LTV for loans under Rs 2.5 lakh will now rise to 85 percent, announced Governor Sanjay Malhotra.

Governor Malhotra explained that this adjustment will accompany certain conditions. Unlike current practices that focus only on the principal, both principal and interest will be accounted for in calculating the LTV. The move is expected to better regulate the gold lending segment while minimizing associated risks.

Malhotra also mentioned that the new rules will clearly specify ownership requirements and eliminate the need for credit appraisal for loans up to Rs 2.5 lakh, where gold is used as collateral. These changes will be included in the final regulation, subject to public consultation and evaluation of the impact.

(With inputs from agencies.)