The Reserve Bank of India (RBI) has eased its policies towards banks sanctioning loans against gold. According to the new ruling, the RBI has permitted Indian banks to sanction loans worth up to Rs 1 lakh against the pledge of gold ornaments and jewellery. Earlier in the year, the RBI had imposed restrictions on banks and NBFCs in regards loans against gold coins and units of gold ETFs and mutual funds.

The new ruling allows bullet repayment of loans given against the pledge of the said gold articles, for other than agricultural purposes, reports say. Bullet repayment is paying the lump sum of loan amount at the time of maturity, reports suggest. As such, the interest on the loans will be added monthly to the account but will be payable along with the loan principle amount.

Banks can lend against the said gold articles - ornaments, gold jewellery and gold coins (weighing up to 50 grams), but within the board approved limit and for a period not exceeding 12 months from the date of sanction. On their part, banks will regard the interest income on such loans into the profit and loss account only on collection, and they should prescribe a minimum margin to be maintained in case of such loans and accordingly fix the loan limit as per market value of the security (gold ornaments), expected price fluctuations, loan interest, reports say. The account would be classified as non-performing asset (sub-standard category) even before the due date of repayment, if the prescribed margin is not maintained.

RBI is said to introduce this new ruling taking into account ‘suggestions from banks and with a view to ensuring a level playing field among various market participants’.