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The Reserve Bank of India has increased the existing limit for gold loans under the Bullet Repayment Scheme to ₹4 lakh from ₹2 lakh in respect of Urban Co-operative Banks who have met the overall target and sub-targets under Priority Sector Lending as of March-end.
RBI permitted bullet repayment of gold loans up to ₹1 lakh to start with (in 2007), which was increased later (in 2014) to ₹2 lakh, with the repayment being restricted to 12 months.
UCBs are allowed to extend gold loans under the Bullet Repayment and Equated Monthly Instalment (EMI) Repayment routes for 12 months.
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Under bullet repayment, the principal and interest on a loan are paid in lumpsum by the borrower to the lender at the end of the loan tenure.
Under EMI, a fixed amount of payment (includes principal and interest components) is made by the borrower to the lender on a specified date each month.
Among banks, UCBs have a relative advantage as their customers, being predominantly from the middle-class/ lower middle-class, are more likely to be gold loan clients. As such, regulatory prescriptions in this regard need to be supportive of the growth of this portfolio of the UCBs.
“Increasing the limit for gold loans from Rs 2 lakh to Rs 4 lakh in respect of urban cooperative banks will prove to be beneficial for buyers during the upcoming wedding season,” said Colin Shah, MD, Kama Jewelry
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