The Reserve Bank of India's Monetary Policy Committee (MPC) has raised the limit of gold loans given by urban cooperative banks under the bullet payment scheme from Rs 2 lakh to Rs 4 lakh, Governor Shaktikanta Das said while announcing the policy decisions on October 6.
The move will help meet the funding requirements of small and marginal borrowers. However, this is only for banks that have met the overall target and sub-targets under the Priority Sector Lending (PSL) as of March 31, 2023.
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Earlier, the RBI permitted bullet repayment of gold loans up to Rs 1 lakh to start with (in 2007), which was increased in 2014 to Rs 2 lakh, with the repayment restricted to 12 months. Urban cooperative banks can extend gold loans under bullet repayment and equated monthly instalment (EMI) repayment routes for 12 months.
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Also known as a “balloon payment” or “bullet repayment,” a bullet payment is a lump sum payment made for the entirety of the outstanding balance on a loan. Bullet payments are most common at the end of the loan term. Some bullet payments are large relative to the cash held by a company.
Investors cheered the announcement, with shares of non-banking financial companies giving gold loans moving up. At 10.50 am, Manappuram Finance was trading 0.92 percent higher at Rs 142.60 and Muthoot Finance 1.01 percent at Rs 1,209.50 on BSE.
Meanwhile, the central bank in its bi-monthly monetary policy meet decide to keep country's key lending rate steady for the fourth consecutive time, as widely expected, but signaled it would keep liquidity tight using bond sales to bring inflation closer to its 4 percent target.
MPC kept the repo rate unchanged at 6.50 percent, in a unanimous decision.
The committee remains "resolutely focused on aligning inflation to the 4 percent target on a durable basis," Das said.
The RBI may consider open market (OMO) sales of bonds to manage liquidity conditions in line with its inflation objectives, Das said.
Commenting on the MPC, Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said, "The MPC, on expected lines, delivered a status quo policy both on rates and stance. We expect the MPC to maintain a prolonged pause while using liquidity tools more frequently to manage the stance given the volatile global environment."
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