In accordance with the Bullet Payment Scheme, the RBI doubles the gold loan limit

Under the bullet repayment system, the Reserve Bank of India (RBI) has doubled the current restriction on gold loans in certain cooperative banks from Rs 2 lakh to Rs 4 lakh. Shaktikanta Das, the governor of the RBI, made the declaration on Friday, October 6.

According to Das, it has been decided to raise the current maximum for Gold Loans under the Bullet Repayment program for Urban Co-operative Banks (UCBs) that have achieved the overall objective and sub-targets under the Priority Sector Lending (PSL) as of March 31, 2023, from 2 lakh to 4 lakh.

This decision is consistent with our earlier declaration that the UCBs identified by Das who have met the designated PSL objectives by March 31, 2023, would receive the proper incentives.

A Bullet Payment Scheme: What Is It?

The Bullet Payment Scheme does away with the necessity for borrowers to follow an EMI schedule or make partial payments throughout the course of the loan by requiring them to pay the whole principle and interest amount at the end of the loan period.

Banks are required to maintain a loan-to-value ratio of 75% under this plan, which includes both the principle loan balance and accumulated interest.

According to a 2017 circular from the central bank, interest will build up on the account on a monthly basis, but it won’t be required for payment until 12 months from the date of sanction, along with the principal.

The loan’s term cannot be more than 12 months from the sanction date. State and central cooperative banks provide loans for a variety of reasons while, as part of its lending strategy, taking gold or gold jewelry as security.

The central bank made the decision to maintain the repo rate or lending rate at 6.5% on Friday.