Anxious Gold loan firms ask for part-payments

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Mumbai: Due to sharp drop in gold prices , banks and gold loan companies have swung into action. As a result those lenders, who offer loans against the yellow metal, are now asking customers to make part-payments of the loans immediately.  AS gold prices fell to a five-year low of less than $1,100/ounce in global markets and it is below Rs25000/ 10gms in india. In case gold prices fall further, banks and gold loan non-banking financial companies (NBFCs) will scale down their loan-to-value (LTV) ratio (the ratio of a loan to the value of an asset purchased) for gold loans.When gold prices fall, the value of gold with the bank (against which loans have been given) also declines. Therefore, lenders ask customers to pre-pay a certain amount. The Reserve Bank of India (RBI) has mandated the ratio at 75 per cent; if prices fall further, lenders will be at the risk of exceeding the limit.

Last year, RBI had barred banks from offering gold loans worth more than 75 per cent of the value of gold jewellery and ornaments. This was aimed at ensuring a level playing field between banks and NBFCs offering such loans. Initially, the central bank had restricted the LTV ratio for gold loan NBFCs at 60 per cent. Last year, it increased the cap. Anticipating a fall in gold prices, a few in this business had already cut LTV ratios for one-year loans.

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