Urban co-op banks seek increase in gold loan limit from ₹2 lakh to ₹5 lakh

Urban Co-operative Banks (UCBs) have endeavored to enhance the ceiling on loans against gold and gold jewelery from ₹2 lakh to ₹5 lakh under payment point scheme in order to meet the financing requirements of small/marginal borrowers.

Jyotindra Mehta, President of the National Federation of Urban Co-operative Banks and Credit Societies (NAFCUB), noted that the point payment method is allowed by Reserve Bank of India (RBI) following continued requests from the UCB segment.

The Reserve Bank of India (RBI) allowed repayment of gold loans of up to ₹1 lakh to begin with (in 2007), which was later increased (in 2014) to ₹2 lakh, with a 12-month restriction on repayment.

“Now is the time for regulations in this regard to be more liberal and supportive to enable banks to face up to competition,” said Mehta.

UCBs are allowed to extend Gold Loans under Express Repayment and Equal Monthly Installment (EMI) methods for a period of 12 months.

Under point payment, the principal and interest on the loan are paid in the form of a lump sum by the borrower to the lender at the end of the loan period.

Under EMI, a fixed amount (including principal and interest components) is paid by the borrower to the lender on a specified date each month.

Mehta believed that the repayment period in the case of quick repayment and repayment of equal monthly installments should be raised from 24 months to 36-48 months, respectively, in line with the flexibility available to non-bank financing companies.

“Among banks, UCBs have a comparative advantage in that their customers, who are predominantly middle class/lower middle class, are more likely to be gold loan customers. As such, regulatory prescriptions in this regard should be massively supportive To grow this portfolio of UCBs,” said NAFCUB President.

Loans against scheduled commercial banks’ gold jewelery portfolio increased by 20.4 per cent year-on-year, as of April 21, 2023, to Rs. 89,665 crore as against Rs. 74,473 crore on April 22, 2022.