RBI allows NBFCs to lend more against gold jewellery

The intrinsic value is arrived in a particular way suggested by the RBI.

NBFCs had raised apprehensions on certifying the purity of the gold jewellery accepted as collateral on grounds that under the current practices it was possible only to arrive at the proximate purity of the gold and that such a certification could lead to dispute with the borrowers.

RBI, however, clarified that the need to give a certificate on the purity of gold cannot be dispensed with.  The certified purity should be applied for determining the maximum permissible loan and the reserve price for auction, it said, adding the NBFCs can, however, include suitable caveats to protect themselves against disputes on redemption.  

It is also clarified that the “ownership verification need not necessarily be through original receipts for the jewellery pledged but a suitable document may be prepared to explain how the ownership was determined...”.

The KUB Rao Working Group had recommended that the LTV ratio may be increased from 60 percent to 75 per cent once the business levels of the gold loan NBFCs come to a level considered appropriate.