The Reserve Bank of India has increased the existing limit for gold loans under the Bullet Repayment scheme from ₹2 lakh to ₹4 lakh for Urban Co-operative Banks that have met the overall target and sub-targets under the Priority Sector Lending as of March-end. The move comes on the back of sharp jump in gold prices.

The RBI permitted bullet repayment of gold loans of 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 Bullet repayment and Equated Monthly Instalment (EMI) repayment route for 12 months.

Under bullet repayment, the principal and interest on a loan are paid in lump sum by a borrower to a lender at the end of the loan tenure.

Under EMI, a fixed amount of payment (includes principal and interest components) is made by a borrower to a lender at a specified date each month.


Among banks, UCBs have a relative advantage as their customers, being predominantly from middle class/lower middle class, are more likely to be gold loan clients. As such, the regulatory prescriptions in this regard need to be highly supportive of the growth of this portfolio of the UCBs.

Colin Shah, Managing Director, Kama Jewellery, said increasing gold loan limit from ₹2 lakh to ₹ 4 lakh in respect of urban cooperative banks will prove to be beneficial for buyers during the upcoming wedding season, particularly in urban regions where gold jewellery is considered a social security.

The pause on key bank rates amid the onset of festival season will give a much-needed boost to consumer buying sentiment, thereby propelling demand, he said.

Banks are witnessing a notable increase in loans secured by gold jewellery (LAGJ), and it is projected that the portfolio will surpass ₹1-lakh crore in the upcoming months. As of June-end, banks’ LAGJ portfolio demonstrated a robust 26 per cent to ₹95,347 crore from ₹77,785 crore in July last year, largely due to public sector banks joining the bandwagon, according to the latest RBI data.

Before the pandemic, the primary lenders in the LAGJ sector were private sector banks, whereas PSBs directed their focus towards agriculture gold loans, a classification tied to priority sector lending.

However, in recent times, PSBs have also shifted their attention towards the LAGJ arena, enticed by the appealing blend of higher returns, diminished default rates, and the simplicity of recovery through auction mechanisms.