Banks and gold loan companies are gearing up to introduce monthly payment plans for gold loans. This comes after the Reserve Bank of India (RBI) underlined gaps in the current disbursal process, as per a report by Economic Times. The new system may require borrowers to start repaying both interest and principal through EMIs right from the start of the loan.
Lenders are also exploring the option of offering term loans secured by gold. Previously, gold loans allowed borrowers to make a one-time bullet repayment at the end of the loan term instead of following a fixed EMI schedule. Borrowers also enjoyed the flexibility to make partial payments whenever possible. This enables them to clear both the principal and interest before the loan’s maturity date.
What issues did the RBI identify in gold loan practices?
The RBI also stated concerns such as improper sourcing, flawed valuation, insufficient due diligence, poor monitoring of loan usage and lack of transparency in auctions. It also flagged shortcomings in tracking the loan-to-value (LTV) ratio, applying risk weights, and rolling over loans with partial repayments.
According to the report, the RBI has made it clear that lenders should assess borrowers’ repayment capacity instead of relying only on the gold used as collateral. A senior banking official stated, “The regulator’s diktat is clear, it wants lenders to examine the payment capacity of borrowers and not solely rely on the collateral.” The official also noted that the RBI disapproves of rolling over loans with partial payments, as this could lead to defaults when repayments are due. “We are now structuring monthly payment options for gold loans,” the official added.
Banks had disbursed Rs 1.4 lakh crore in jewellery loans. This marks a significant 51 per cent increase compared to the 14.6 per cent growth recorded a year earlier. The gold loan sector has seen remarkable expansion in recent years. A recent ICRA report estimates that organised gold, provided by banks and NBFCs. This is set to exceed Rs 10 lakh crore in the current fiscal year. The reports suggest that this figure could reach Rs 15 lakh crore by March 2027.
