RBI monetary policy tools
Loan against Gold & Gold Ornaments
RBI Guidelines on Gold
the Reserve Bank of India (RBI) issued guidelines barring banks from
giving loans against units of gold exchange-traded funds (ETFs) and
gold mutual funds (MFs).
In a separate circular, RBI stated that
non-banking finance companies (NBFCs) are banned from giving loans
against bullion or primary gold and gold coins. RBI clarified that
NBFCs should not give loans for purchase of gold in any form,
including primary gold, gold bullion, gold jewellery, gold coins,
units of gold ETFs and units of gold MFs.
For banks, RBI also restricted loans against gold
coins per customer to gold coins weighing up to 50g. Banks and NBFCs
can give loans against gold ornaments and jewellery.
The new guidelines
Gold ETFs and gold MFs are backed by bullion or
primary gold. RBI has been against the practice of giving loans
against gold bullion. Now, RBI has clarified that considering the
underlying product is bullion or primary gold, the restriction on
grant of loan against “gold bullion” will be applicable on gold ETFs
and units of gold MFs as well. Says R.K. Bansal, executive director,
IDBI Bank Ltd, “RBI was always against the practice of giving loan
against bullion or primary gold. They are saying the same thing
In case of gold coins, RBI states that banks are
allowed to give loans only against specially minted gold coins sold
by banks as they may not be in the nature of “bullion” or “primary
gold”. However, RBI states that there is a risk that some of these
coins would be weighing much more, which can go against RBI’s
guidelines of restriction on grant of advance against gold bullion.
So, if a bank is giving loan against gold coins, banks should ensure
that the weight of the coins does not exceed 50g.
What is the practice?
Two of the listed gold loan firms have denied
giving loans against gold ETFs and gold MFs to its customers. Says
George Alexander Muthoot, managing director, Muthoot Finance Ltd and
president, Association of Gold Loan Companies (India), “We don’t
have a single customer who has taken loan against gold ETFs or gold
You can no more pledge gold ETFs and gold MFs in
case you need a loan. However, this doesn’t mean that you should
stay away from these products. Says Suresh Sadagoppan, a
Mumbai-based financial planner, “The best way to buy gold for
investment purpose is in paper form such as gold ETF and gold MF.”
As RBI has put a cap of 50g on gold coins, again your option of
pledging gold comes down further.
||* Loan amount
Rs 10000/ to Rs 15,00,000/ with single tranche disbursement. Repayment can
be on or before maturity.
* Gold ornament should be of 18 carat purity
and above. If the loan is against gold coins, the coins should have been
issued by Banks.
* Bullion items like gold bars, biscuits, gold coins issued by
jewelers, NBFCs are ineligible for loans.
* Only individuals between 18 & 70 years are eligible. Pawn brokers,
HUFs, sole proprietorships, partnership firms, corporate and co-operatives
* If loan is for more than Rs 1 Lac for agricultural purpose, proof of
land holding. If for allied agricultural activity, no proof required.
* 13% p.a. for agricultural purpose, 14% p.a. for allied agricultural
advances & 16.5% for non-agricultural advances. Interest charged is simple
* Processing fee is 1% of sanctioned limit.
For agricultural loan up to Rs 25000/ per borrower, no processing fee.Fees
will attract additional service tax, Educational Cess at the prescribed
* In case of late payment, penal interest at 6% p.a. shall be
|List of Branches offering
* Loan amount from Rs 50000/ up to Rs 10 lakh. In
case of EMI options, the loan shall be considered regular if interest is
serviced regularly. Tenor of gold loan can be up to 24 months. Overdraft
facility is also available in gold loan in a current account for a period
of 12 months subject to renewal. The amount is from Rs 75000-Rs 20 lakh
and there is no foreclosure charge.
* loan to individuals for personal purpose. No speculative activity.
* Processing fee up to 1.5% of loan sanctioned.
Valuation fee- Rs 350/. Fees will attract additional service tax,
Educational Cess at the prescribed rate.
* In case of late payment, penal interest at 2% p.a.
over the applicable rate of interest. Prepayment & part payment charges
* Loan amount from Rs 50000/ to Rs 20 lakh for existing
customers and from Rs 50000/ to Rs 4 lakh for new customers.
* loan against gold ornaments & gold coins.
||* Rate of interest
14.5% p.a. to 15.5% p.a.
* processing fee
0.5% of loan amount. Valuation fee Rs 200/ per customer.
* Penal interest for Late payment is 2% p.a. Fore
closure & part payment charges NIL.
* Loan amount up to Rs 75
lakh. Savings Bank account not required for loan up to Rs 2 lakh.
Repayment period up to 12 months. It can be lump sum or instalment. Loan
amount is 65% of market value of gold subject to a maximum of Rs 1575/ per
* Loan against
pledge of gold ornaments of 22 carats.
*Minimum eligibility age
18 years. Resident individuals and proprietors are eligible. The customer
can avail a loan of 90% Loan-to-Value of the total valuation by Bank's
certified Assayer. Loan amount can be from Rs 25000/ to Rs 25 lakh. No
income document is required for a loan up to Rs 10 lakh.
* Gold ornaments & articles should be above
the bank does not accept ornaments such as "Mangalsutra", "Thali", "Raksha",
Kodi", "Karimanimala", "Gold
Statues" & "Gold wrist watches".
* The loan can be a Term
Loan with regular monthly interest servicing and a bullet payment
for a tenure of 3/6/9/12 months or EMI option of 24/36 months or can be an
Overdraft facility of 12 months. Those who are not existing Kotak
customers can also avail of the facility. Foreclosure is permitted 11/2
month after availing the loan.