In response to the recent robust surge in gold prices, the Reserve Bank of India (RBI) has taken a significant step by raising the gold loan limit for Urban Co-operative Banks (UCBs) to ₹4 lakh, provided they meet Priority Sector Lending targets. This notable adjustment was announced on Friday.
This regulatory change marks a substantial increase from the previous limits, which stood at ₹1 lakh in 2007 and were later elevated to ₹2 lakh in 2014. UCBs can now extend gold loans, offering borrowers the choice of either Bullet or EMI repayments spread over a 12-month period.
Lenders have observed a notable uptick in Loans Against Gold Jewellery (LAGJ), with projections indicating that this lending category is on track to surpass the ₹1-lakh crore milestone in the near future. Public Sector Banks (PSBs) have been increasingly diverting their attention towards LAGJ, primarily due to the promise of higher returns, lower default rates, and the straightforward recovery process facilitated by auction mechanisms.
Colin Shah, a representative from Kama Jewellery, shared his insights on this development. He remarked that this change is expected to be particularly beneficial to buyers, especially during the upcoming wedding season. In urban areas where gold often serves as a form of social security, the increased gold loan limit is seen as a significant support.
The ripple effect of this regulatory adjustment is anticipated to be most pronounced among the middle and lower-middle-class clientele of UCBs. Observers view this move by the RBI as a strategic response to prevailing market conditions and the evolving needs of Indian consumers.
