Maximum loan amount for gold rose from 2 lakh to 4 lakh: How would this help?

According to Shaktikanta Das, it has been decided to raise the current maximum for Gold Loans under the Bullet Repayment programme for Urban Co-operative Banks (UCBs) that have met the overall objective and sub-targets under the Priority Sector Lending (PSL) as of March 31, 2023, from 2 lakh to 4 lakh.

Read more: RBI Monetary Policy 2023: What factors influence policy rate?

This choice is made as a reward for urban cooperative banks for achieving required priority sector lending (PSL) targets.

What is Bullet Repayment programme?

Borrowers who choose the gold loan bullet repayment option must pay back the entire principal and interest balance at the end of the loan term.

The requirement for recurring payments throughout the loan term is removed with this choice, in contrast with standard loans with monthly EMI schedules.

The borrower is required to make a single payment of the entire principal and interest at the conclusion of the loan term, but it's crucial to note that the interest amount on the gold loan is computed monthly during the lifespan.

Why RBI took this decision?

In 2007, the RBI first permitted gold loans with a maximum bullet payback of Rs 1 lakh. The cap was extended to Rs 2 lakhs in 2014; however the payback duration was limited to just 12 months.

For the purpose of assisting small and marginal borrowers in meeting their funding needs, UCBs have been advocating for an increase in the loan maximum.

The deadline for UCBs to meet PSL targets was recently extended by RBI by two years, to March 31, 2026.

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