Money & Banking

Borrowers to get option to repay a part of the Gold (Metal) Loan in physical gold

Our Bureau Mumbai | Updated on June 23, 2021

Currently, these loans are repaid in Rupees, equivalent to the value of gold borrowed

The Reserve Bank of India (RBI) has asked banks to provide jewellery exporters/ domestic manufacturers of gold jewellery an option to repay a part of the Gold (Metal) Loan (GML) in physical gold in lots of one kg or more.

Currently, these loans are repaid in Rupees, equivalent to the value of gold borrowed, on the relevant date/s.

The option to the borrower to repay a part of the GML in physical gold in lots of one kg or more can be given, subject to conditions that the GML has been extended out of locally sourced/ GMS (Gold Monetisation Scheme)-linked gold; and repayment is made using locally sourced IGDS (India Good Delivery Standard)/ LGDS (LBMA’s Good Delivery Standards) gold.

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The other conditions that have been prescribed are that the gold is delivered on behalf of the borrower to the bank directly by the refiner or a Central agency, acceptable to the bank, without the borrower’s involvement; the loan agreement contains details of the option to be exercised by the borrower, acceptable standards and manner of delivery of gold for repayment; and the borrower is apprised upfront, in a transparent manner, of the implications of exercising the option.

The Central bank asked banks to suitably incorporate the above aspects into the board-approved policy governing GML along with concomitant risk management measures. The banks shall continue to monitor the end-use of funds lent under GML.

As per the extant instructions, nominated banks authorised to import gold and designated banks participating in Gold Monetization Scheme, 2015 (GMS) can extend Gold (Metal) Loans (GML) to jewellery exporters or domestic manufacturers of gold jewellery.

Published on June 23, 2021

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