The Reserve Bank of India (RBI) has increased the Bullet Repayment gold loan limit to ₹4 lakh for Urban Co-operative Banks (UCBs) that meet Priority Sector Lending targets. This change, announced on Friday, is a response to the recent sharp rise in gold prices.
The gold loan limit was initially set at ₹1 lakh in 2007 and later increased to ₹2 lakh in 2014. UCBs are now able to provide gold loans through Bullet or EMI repayments over a 12-month period.
Banks have noted an uptick in Loans Against Gold Jewellery (LAGJ), which are projected to exceed the ₹1-lakh crore mark in the near future. Public Sector Banks (PSBs) have started focusing more on LAGJ due to its higher returns, lower default rates, and uncomplicated recovery process through auction mechanisms.
Colin Shah of Kama Jewellery commented on this development, stating it would assist buyers during the wedding season, especially in urban areas where gold is considered a form of social security.
This regulatory alteration is expected to primarily affect the middle and lower-middle-class clientele of UCBs. The move is seen as a strategic adjustment by the RBI in response to market conditions and the changing needs of Indian consumers.
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