UCBs allowed to offer gold loans with bullet repayment
By Vaibhav Aggarwal
Nov 27, 2007
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New Delhi: The Urban Co-operative Banks (UCBs) will now be able to offer loans against gold, up to an amount of Rs. 1 lakh with a bullet repayment option. This was stated by the Reserve Bank of India (RBI) in a notification. A loan with bullet repayment option is where the entire loan amount is paid with interest at maturity.

RBI has allowed the UCBs to charge interest rate for such loans on a monthly basis, but it will be due for payment at the end of loan maturity along with the principal. There would be many obligations on the part of UCBs if they have to provide such a product. The UCBs will have to fix a loan limit, paying due consideration to the market value of the gold, the price fluctuations expected and the interest levied during the entire tenure of the loan.

Keeping all the different parameters in view, the UCBs will be required to maintain a minimum margin. If the UCBs are not able to maintain the prescribed margin the loan will be classified as a Non-Performing Asset (NPA), even before the due date.

Though, UCBs are a new entrant in this field, regular banks in both private and public sector have been providing loan against gold for a long time. HDFC Bank allows loans against gold for amounts up to Rs 10,00,000 for any purpose, with flexible repayment options ranging from 3 to 12 months. This loan is also a bullet loan and can be repaid at maturity, thus relieving the borrower of any EMI hassles.

The State Bank of India (SBI) also offers loan against gold ornaments. A loan below Rs. 1,00,000 against the collateral of gold carries an interest rate of 12.25% per annum. and can be repaid in 30 months. The interest rate on such loans with amounts over Rs. 1,00,000 is 12.75% per annum.

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