RBI tightens norms for companies lending against gold
As per the notification by the RBI, the central bank has tightened rules for finance companies which lend against gold, in line with the suggestions of an internal panel. As per the new rules:
- The lenders need to value the pledged gold at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association Ltd, to arrive at the loan-to-value ratio. The ratio would remain at 60% for loans against jewellery.
- At present, there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary.
- The process by which lenders auction gold when a borrower defaults has also been streamlined by the RBI. Lenders will now need to declare a reserve price for the pledged ornaments.
- Lenders would also need RBI clearance to open branches exceeding 1,000.
- New branches would not be allowed without sufficient storage facility for gold.