All about the master circular of RBI regarding Gold Loans
Gold loans are pretty popular among the masses when any financial emergency comes up. But the laws relating to loans and advances are changing rapidly. The Reserve Bank of India's master circular combines all instructions issued by the RBI to banks on statutory and other loan and advance limitations.
The interest rates of different Banks like SBI gold loan interest rate and others will now be affected after the restriction imposed by the RBI.
The Reserve Bank of India has published the master circular, a framework of rules, regulations, and instructions issued to the scheduled commercial Banks in India. These instructions are specified on different restrictions on loans and advances provided by the Banks to their customers. The scheduled Banks must implement these instructions and adapt sufficient safeguards to ensure sound running of banking activities with profitable lines.
According to the master circular, commercial banks should not grant any advance or loan against bullion or primary gold. Likewise, the Banks should forbear from granting any advance to the silver bullion dealers to be used for speculative purposes. Regarding advances against Gold jewelry and ornaments, the master circular states about hallmarking of gold jewelry. Hallmarking ensures the quality of gold used to make gold jewelry in terms of caratage, fineness, and purity. So from the Financial Institution's point of view, it is profitable and safe to advance gold loans against hallmark jewelry as collateral.
The preferred treatment of hallmark jewelry over jewelry of other quality will become favorable for the customers, creditors, and the entire gold loan industry. The practice of hallmarking gold ornaments will enhance this way, earning profits for the gold owner and gold loan creditor in the long term. Additionally, advances against a gold loan will have benefits if the gold is a hallmark as it can directly affect the margin and rates of interest thereon. The interest rate can be determined with the help of a gold loan interest rate calculator.
Banks have been nominated to import gold as per instructions for domestic jewelry manufacturers who do not export jewelry. But the provision of aggregate borrowing for non-export purposes will be taken into account and kept. The banks fix the overall ceiling limit, and only 25% of it would be extended to jewelry exporters. The gold loans provided by banks will now be subjected to some conditions. The nominated banks are no longer allowed to arrange for retailing gold or gold coins with any other entity, including the NBFC, cooperative banks, and non-nominated banks.
The period of gold loans nominated by different banks is now permitted to extend to domestic jewelry manufacturers, but the repayment period must not exceed 180 days. Furthermore, banks must adhere strictly to monitoring the usage of such gold loans by the domestic Jewellers and keeping the records documented in the bank’s loan books. Fulfilling this requirement of monitoring the utilization of funds is very important as this can directly impact the future request of the bank for the annual renewal of authorization to import gold or silver. Some more requirements are to be fulfilled by the banks stated below:
- The interest rates on gold loans charged on the borrowers must be linked to the international gold interest rate.
- The gold borrowings will always be subject to the standard reserve requirements prescribed by the authorities.
- The capital adequacy and other prudential requirements will be considered for the Gold Loan.
- The banks must strictly follow KYC guidelines, and the end-use of the loans to Jewellers must be ensured.
- The Nominated Bank board will approve a prior prudential risk limit, and the banks must strictly follow the rule and not cross that limit. This board will further lay down a detailed lending policy, and the bank will evaluate the overall risk while granting a loan.
Also read this: Gold loan helps you overcome Financial crisis