Urban co-operative banks (UCBs) have sought enhancement in the ceiling on loans against gold and gold jewellery from ₹2 lakh to ₹5 lakh under the bullet payment scheme in order to meet the funding requirements of small/marginal borrowers.

Jyotindra Mehta, President, National Federation Of Urban Cooperative Banks & Credit Societies (NAFCUB), observed that bullet payment method was permitted by the Reserve Bank of India (RBI) after persistent requests from the UCB sector.

RBI permitted bullet repayment of gold loans up to ₹1 lakh to start with (in 2007), which was increased later (in 2014) to ₹2 lakhs, with the repayment being restricted to 12 months.

“The time is ripe now for regulations in this regard to be more liberal and supportive to enable banks to face competition,” Mehta said.

UCBs are allowed to extend gold loans under Bullet repayment and Equated Monthly Instalment (EMI) repayment routes 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.

Mehta opined that the repayment period in the case of bullet repayment and EMI repayment should be raised from 24 months to 36-48 months, respectively, in line with the flexibility available to the non-banking finance companies.

“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,” the NAFCUB President said.

The loans against gold jewellery portfolio of scheduled commercial banks rose by 20.4 per cent year-on-year, as of on April 21, 2023, to stand at ₹89,665 crore against ₹74,473 crore as on April 22, 2022.

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