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Loan against Gold & Gold Ornaments

RBI Guidelines on Gold Loans

On 03/06/2013, 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 again.”

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 MFs.”

IWhat should you do

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.





ICICI Bank * 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  are ineligible.

* If loan is for more than Rs 1 Lac for agricultural purpose, proof of land holding. If for allied agricultural activity, no proof required.

Interest Rate * 13% p.a. for agricultural purpose, 14% p.a. for allied agricultural advances & 16.5% for non-agricultural advances. Interest charged is simple interest.--w.e.f. 06/06/2012

* 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 rate.

* In case of late payment, penal interest at  6% p.a. shall be charged.

List of Branches offering loan   CLICK



* 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.

Interest Rate

* 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 upto 1%.



Axis Bank

* 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.

Interest Rate * 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.



Federal Bank

* 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 gm.

* Loan against pledge of gold ornaments of 22 carats.

Interest Rates  


Kotak Bank

*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 18 carat.

However 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.

Interest Rates  


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