The Reserve Bank of India has raised the cap of loans that NBFCs, especially gold loan companies can give against gold and jewelry mortgaged by people. These entities can now give up to 75% of the value of the gold jewelry pledged, against the earlier cap of 60%, as loan. The RBI has raised the cap with immediate effect in view of the moderation in the growth of gold loan portfolios of NBFCs and also taking into consideration the experience so far. The central bank, in March 2012, had directed the NBFCs not to give more than 60% of the value of gold jewelry pledged in view of the rapid pace of their business growth and the nature of their business model, which has inherent concentration risk and is exposed to adverse movement of gold prices. The value of the jewellery, for the purpose of determining the maximum permissible loan amount, will be only the intrinsic value of the gold content therein, the RBI said and no other cost elements, such as making charges, should be added there to. RBI has also directed that NBFCs should evolve an explicit policy with regard to determining the ownership of the gold jewelry to be mortgaged while obtaining the loan. It has clarified that the ownership verification need not necessarily be through original receipts for the jewellery pledged.
