The Reserve Bank of India (RBI) released a draft of new gold loan rules on April 9. These proposed changes have sparked major discussion in the financial sector, especially among bankers.
They believe the new rules could create problems for people who take gold loans in times of urgent need.
However, the RBI’s goal is to protect gold loan customers by making rules consistent across commercial banks, co-operative banks, and NBFCs.
People may be forced to borrow from moneylenders again
Every year, lakhs of low-income people rely on gold loans. Bankers fear that stricter rules may push these people back toward borrowing from local moneylenders who charge high interest rates.
While the RBI’s intention behind the guidelines is to protect borrowers, it may harm the gold loan market, which has long been a simple way for people to meet their financial needs.
Rule to verify gold ownership may create issues
One part of the draft rules says that banks and NBFCs must confirm who owns the gold being pledged.
If a borrower cannot show a purchase receipt, they must give some other proof that the gold belongs to them.
Bankers say this rule will make it harder, especially for rural customers, to get gold loans.
Loan amounts may become smaller
Concerns have been raised about the definition of the loan-to-value (LTV) ratio for bullet repayment loans.
These are gold loans where the borrower pays both the principal and interest at the end of the term.
Under the new rules, customers may receive a smaller loan amount. This could cause trouble for people who need gold loans for farming or emergencies.
The RBI has also proposed a 12-month limit on consumption loans and capped the LTV ratio at 75 percent.
Gold loans are a simple option for low-income groups
Though the new rules are meant to lower risks in the banking system, they could hurt the very people the RBI wants to help.
Gold loans are an easy way to get money for those who can’t access other sources of credit.
Lakhs of low-income families, small farmers, and small business owners use their household jewellery to get gold loans from banks.
