The Reserve Bank of India Governor Shaktikanta Das, on Thursday, announced an increase in loan to value ratio or LTV for loans sanctioned against pledge of gold ornaments from 75 pct to 90 pct. The announcement came in the wake of COVID-19 impact on people's finances and the benefit will be extended till March 31, 2021. As per extant guidelines, loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75 percent of the value of gold ornaments and jewellery.   

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“With a view to further mitigate the economic impact of the Covid19 pandemic on households, entrepreneurs and small businesses, it has been decided to increase the permissible loan to value ratio (LTV) for loans against pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent. This enhanced LTV ratio will be applicable up to March 31, 2021 to enable the borrowers to tide over their temporary liquidity mismatches on account of COVID 19. Accordingly, fresh gold loans sanctioned on and after April 1, 2021 shall attract LTV ratio of 75 per cent,” the RBI said. 

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While the move allows banks to lend out more money, the eventual beneficiary will be borrowers like MSMEs and farmers, who can now have access to more capital.  

“RBI's policy on revision in LTV from 75 percent to 90 percent is a very welcome step and much needed support during these Covid times. Today MSMEs and Farmers need capital to restart. Gold loan is an easy product and people can avail this loan over the counter within 30 mins. The customers will be able to access more capital with ease and will help in restarting with pride without taking any obligations from anyone,” explained Saurabh Kumar, Head of Gold Loans, IIFL Finance.  

Kumar added that at the same time Banks and NBFCs will have to have strong risk management to ensure this easing is used effectively.