So from now on, banks can lend you more than Rs. 1 lakh against your gold ornaments. Earlier the banks were restricted to sanction loan to the limit of Rs. 1 lakh against gold ornaments. The new notification was put forward by RBI as the banks requested it to review all conditions applicable to non agricultural loans and relax the limit.
Therefore, from now on the banks can decide how much loans it may sanction against the gold ornaments provided the limit gets sanctioned by its Board. The tenor of the loan sanctioned, however, should not be more than 12 months from the date of sanction.
With this circulation, all the banks are likely to increase the limit. However, the loan amount may vary from one bank to another as individual banks will now make its own decision on how much loan to be sanctioned against gold ornaments. So you must check with the banks and know the limits first before applying for a loan against your gold jewelleries.
The loan amount also depends on the value of your gold ornaments. The loan to value ratio (LTV) i.e. the amount the financial institutions can lend against gold ornaments is fixed at 75 per cent of the value of the gold ornaments that are pledged by the loan seekers.
While taking loans against your gold ornaments you must check other facts such as interest rates and processing charges apart from LTV and the amount the banks will lend. Generally, banks charge lower interest rates than non banking financial companies (NBFCs). You must check the processing fee as well as the penalty for late payment of the banks.