What changed
RBI allowed bullet repayment for non-agriculture gold loans up to Rs 1 lakh, replacing earlier amortising structures. Loans must not exceed Rs 1 lakh, tenure capped at 12 months, and interest is charged monthly but payable with principal at maturity. Banks must set a minimum margin; if margin is not maintained, the account is classified as sub-standard NPA even before due date.
What it means for you
Banks can now offer simpler gold loan products for small borrowers, reducing repayment burden until maturity. However, strict margin monitoring is critical—any breach triggers immediate NPA classification. Interest income can only be booked on actual collection, impacting profit recognition. This levels the playing field with non-bank lenders who already offered bullet repayment.
What you must do
- Update loan policy to include bullet repayment option for non-agriculture gold loans up to Rs 1 lakh with 12-month tenure.
- Set and monitor minimum margin requirements; fix loan limits considering gold value, price fluctuations, and accrued interest.
- Ensure interest income is recognised in P&L only upon collection, not accrual.
- Classify accounts as sub-standard NPA if prescribed margin is not maintained, even before repayment due date.
- Train staff on revised asset classification and income recognition norms for these loans.
Who it affects
All scheduled commercial banks (excluding Local Area Banks and Regional Rural Banks), Retail lending teams handling gold loans, Credit risk and monitoring departments, Branch managers approving small-ticket gold loans
Can we offer bullet repayment for gold loans above Rs 1 lakh?
No, this facility is strictly limited to loans not exceeding Rs 1 lakh at any point of time. Larger loans must follow existing amortising structures.
When does the loan become NPA under this scheme?
The account is classified as sub-standard NPA even before the due date if the prescribed margin is not maintained. Additionally, standard NPA norms apply once principal or interest becomes overdue.
How should we recognise interest income on these bullet repayment loans?
Interest income must be recognised in the profit and loss account only on collection, not on an accrual basis. This is a key deviation from standard accrual accounting.