What changed
RBI introduced a mandatory LTV cap of 75% for all UCB loans against gold jewellery, including bullet repayment loans. Valuation method was standardized: gold jewellery must now be valued at the average of the preceding 30 days' closing price of 22-carat gold as quoted by IBJA. For gold below 22 carats, banks must convert the collateral to 22-carat equivalent and value proportionately.
What it means for you
UCBs must tighten underwriting to ensure no gold loan exceeds 75% of the collateral's standardized value. The uniform valuation method reduces discretion and enhances transparency for borrowers. Banks need to update their loan policies and systems to use IBJA's 30-day average price. Existing loans may need revaluation if they exceed the new LTV limit.
What you must do
- Update gold loan policy to cap LTV at 75% for all new sanctions, including bullet repayment loans.
- Adopt IBJA's 30-day average closing price of 22-carat gold for all jewellery valuations.
- Ensure lower-purity gold is converted to 22-carat equivalent before valuation.
- Review existing gold loan portfolio for compliance with the new LTV cap.
- Get board approval for the revised gold lending policy.
Who it affects
All Primary (Urban) Co-operative Banks, Gold loan borrowers of UCBs, UCB board of directors and credit committees
Does the 75% LTV cap apply to all types of gold loans?
Yes, it applies to all loans against gold jewellery, including bullet repayment loans where principal is repaid at maturity.
How should we value gold jewellery of lower purity?
Convert the jewellery to its 22-carat equivalent weight and then value it using the 30-day average closing price of 22-carat gold from IBJA.
Is the valuation method mandatory for all UCBs?
Yes, RBI has standardized the valuation method to ensure transparency and consistency across all UCBs.