Advances against Gold Ornaments & Jewellery
The RBI vide its Master Circular No. RBI/2015-16/95 DBR.No.Dir.BC.10/13.03.00/2015-16 dated July 1, 2015 provides that hallmarking of gold jewellery ensures the quality of gold used in the jewellery as to carat fineness and purity. Hence, banks find granting of advances against the security of such hallmarked jewellery safer and easier. Preferential treatment is given to loans against hallmarked jewellery which will also be in the long-term interest of consumer, lenders and the industry. Based on gold purity and content the bank decides on the margin and rates of interest.
Loan to Value Ratio for Loan against Gold Ornaments & Jewellery
The RBI vide its Master Circular No. RBI/2015-16/95 DBR.No.Dir.BC.10/13.03.00/2015-16 dated July 1, 2015 provides that loans (including bullet repayment loans) sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75 per cent of the value of gold ornaments and jewellery.
In order to standardize the valuation and make it more transparent to the borrower, gold ornaments and jewellery accepted as security / collateral will have to be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd. [Formerly known as the Bombay Bullion Association Ltd. (BBA)]. If the gold is of purity less than 22 carats, the bank should translate the collateral into 22 carat and value the exact grams of the collateral. In other words, jewellery of lower purity of gold shall be valued proportionately.
Loans extended against pledge of gold ornaments and jewellery for other than agricultural purposes, where both interest and principal are due for payment at maturity of the loan will be subject to the following conditions:
(i) Banks, as per their Board approved policy, may decide upon the ceiling with regard to the quantum of loan that may be granted against the pledge of
gold jewellery and ornaments for non-agricultural end uses.
(ii) The period of the loan shall not exceed 12 months from the date of sanction.
(iii) Interest will be charged to the account at monthly rests and may be recognized on accrual basis provided the account is classified as ‘standard’ account. This will also apply to existing loans.
(iv) Such loans shall also be governed by other extant norms pertaining to income recognition, asset classification and provisioning which shall be applicable once the principal and interest become overdue.