What changed
Previously, interest on gold loans for non-agricultural purposes had to be serviced monthly. Now, co-operative banks can offer a bullet repayment option where principal and accumulated interest are paid together at the end of the loan tenure, up to ₹1 lakh and 12 months.
What it means for you
This gives co-operative banks a new product to attract borrowers who prefer lump-sum repayment, potentially increasing gold loan portfolios. However, banks must carefully manage margin requirements and NPA classification, as loans can become sub-standard if margins dip before maturity.
What you must do
- Get board approval for a gold loan policy with bullet repayment option, adhering to the ₹1 lakh cap and 12-month tenure.
- Set minimum margin requirements considering gold price volatility and accrued interest to avoid early NPA classification.
- Ensure income recognition and asset classification norms are applied once principal or interest becomes overdue.
- Train staff to differentiate bullet repayment gold loans from crop loans, which continue under existing norms.
Who it affects
State and District Central Co-operative Banks, Gold loan borrowers seeking bullet repayment, Bank board members approving loan policies
Can we offer bullet repayment for gold loans above ₹1 lakh?
No, the circular explicitly limits bullet repayment gold loans to a maximum of ₹1 lakh at any point in time.
How is interest treated under bullet repayment?
Interest is charged at monthly rests but becomes due only at the end of 12 months, along with principal repayment.
What happens if the gold margin drops before maturity?
The loan must be classified as NPA (sub-standard category) even before the due date if the prescribed margin is not maintained.