What changed
Previously, Gold Metal Loans (GML) could only be repaid in INR equivalent to the gold value. Now, banks must offer borrowers the option to repay a portion of the loan in physical gold, provided the gold is locally sourced or from the Gold Monetization Scheme, meets IGDS/LGDS standards, and is delivered directly by the refiner or a central agency without borrower involvement.
What it means for you
This gives jewellery exporters and domestic manufacturers more flexibility in managing gold inventory and cash flows. Banks need to update their GML policies, incorporate risk management measures, and ensure transparent communication with borrowers about the implications of repaying in gold.
What you must do
- Update your board-approved Gold Metal Loan policy to include the option for partial repayment in physical gold, specifying minimum lot size (1 kg), acceptable gold standards, and delivery procedures.
- Ensure loan agreements clearly detail the repayment option, acceptable gold standards, and the manner of delivery, and inform borrowers upfront about all implications.
- Implement risk management measures for accepting physical gold as repayment, including valuation, storage, and purity verification processes.
- Continue monitoring end-use of funds lent under GML as per existing instructions.
Who it affects
Scheduled Commercial Banks (excluding RRBs) extending Gold Metal Loans, Jewellery exporters and domestic manufacturers of gold jewellery, Nominated banks authorized to import gold, Designated banks participating in Gold Monetization Scheme, 2015
Can borrowers repay the entire GML in physical gold?
No, only partial repayment is allowed, and that too in lots of one kg or more. The option applies only to loans extended from locally sourced or GMS-linked gold.
What gold standards are acceptable for repayment?
The gold must meet India Good Delivery Standard (IGDS) or LBMA Good Delivery Standards (LGDS). It must be delivered directly by the refiner or a central agency acceptable to the bank, without the borrower handling the gold.
Do we need to change our existing loan agreements?
Yes, loan agreements must now include details of the repayment option, acceptable gold standards, and delivery procedures. Borrowers must be informed upfront about the implications of choosing this option.