On Thursday, the Reserve Bank of India (RBI) eased gold loan guidelines which will enable lenders to provide more funds as loan against jewellery. Currently, as per RBI guidelines, up to 75 percent of the value of the gold can be lent. As per the new update, 90 percent of the value of gold can be lent. This extended limit will be effective until March 31.
The change comes amid a significant surge in gold prices that have increased the popularity of gold loans among banks. Gold loans are also considered safe by banks as these are secured loans, unlike personal loans that hold the risk of default. Lenders have been using various options to control their non-performing assets (NPAs) amid the pandemic and moratorium issued by the central bank.
RBI also expects the economy to contract this financial year as the pandemic ravages economic activity worldwide. There are growing concerns of unemployment, reduced income-earning capacities and subsequent concerns that people will struggle to repay riskier business and personal loans.
Apart from gold loan companies, several state-owned and private banks are also coming out with promotional offers around gold loans to lure customers.
Leading public-sector banks like SBI (State Bank of India), Canara Bank and also smaller banks like ESAF and Ujjivan have launched new gold loan schemes to those who may need funds for emergency needs.