RBI Increases Urban Cooperative Banks’ Gold Loan Limit from Rs. 2 Lakh to Rs. 4 Lakh
The maximum for gold loans under the bullet payback plan will rise from Rs 2 lakh to Rs 4 lakh for urban cooperative banks that have reached objectives and sub-targets under the priority sector lending as of March 31, 2023, according to an announcement made by the RBI on Friday.
In 2007, the RBI permitted 12-month amortization of gold loans up to a maximum of Rs 1 lakh; in 2014, this limit was raised to Rs 2 lakh.
The principle and interest on a loan are paid in full to a lender at the conclusion of the loan term under the bullet repayment plan.
“The RBI guidance to reward lenders (Urban Co-operative Banks) who have made priority sector targets to provide these products, is the right incentive structure and a step in the positive direction,” said Vivek Iyer, partner at Grant Thornton Bharat.
He continued by saying that bullet repayment plans provide borrowers the freedom to utilize borrowed money for a longer period of time while only making repayments at the conclusion of the loan term. By doing this, the borrower is able to reinvest money that his company has made back into it. Working capital cycles for MSME companies are often shorter, and gold loans with bullet payback plans provide them more flexibility.
