As banks have been highly cautious in their lending amid Covid 19 crisis and by and large are avoiding disbursals of unsecured loan without extended scrutiny, gold loan saw their demand surge. Consequently, in its August bi-monthly monetary policy meet, RBI took the decision to increase loan to value or LTV ratio for gold loan to 90% from the earlier 75%. Implying that now against the mortgaged gold, borrowers will be able to avail up to 90% of the value of gold as credit.
But even as the proposition in a plain sense seems delightful, it actually isn't so, here we tell you why:
As per experts, the option of availing higher loan amount against mortgaged gold holds good as long as the gold prices continue to rise. But as is now the case wherein we are seeing correction in gold prices it may create additional burden for gold loan borrowers. Interestingly, gold prices slumped from record highs of Rs. 56000 to Rs. 50000 in a matter of just 2 days and now gold of 22 K is quoting at Rs. 51980 per 10 gm (prices as on August 19, 2020).
So, if the trend continues i.e. gold prices continue to fall as it did today as well, gold loan NBFC companies and banks may ask borrowers to deposit additional gold or make partial repayment of loan such that loan to value ratio remains at or below 90%.
To understand it let's say you mortgaged 100 gm of gold with the lending institution which valued it at Rs 4 lakh and disbursed a loan amount of Rs. 3.6 lakh ( the maximum amount considering the LTV ratio of 90%). Then in case prices fall by 10% from Rs. 52980 (for 24 K gold) to Rs. 47682, banks may ask you to keep additional 10gm gold as collateral or may ask you to repay loan amount of Rs. 40000.
Thus considering the above case it shall not be a best move of availing the maximum allowed loan amount against your mortgaged gold.