RBI clarifies loans against voluntary gold and silver pledged up to limit not norm violation

Reserve Bank of India

The Reserve Bank of India (RBI) on July 11 clarified that loans sanctioned by banks against the voluntary pledge of gold and silver as collateral, up to the collateral-free limit, will not be considered a violation of the guidelines on collateral.

“It is clarified that loans against voluntary pledge of Gold and Silver as collateral by borrowers, sanctioned by the banks upto the collateral free limit, as covered under the Circular/Master Direction referred to in para 1 above, will not be construed as a violation of the above-mentioned guidelines as regards such collateral,” RBI said in a release.

Last month, the central bank released the final guidelines for lending against gold and silver collateral.

According to the guidelines, lenders shall not grant any advance or loan against primary gold or silver, or financial assets backed by primary gold or silver, such as units of Exchange-Traded Funds (ETFs) or units of Mutual Funds.

Loans should also not be granted where the ownership of the gold is doubtful. A suitable document or declaration must be obtained from the borrower in all cases, affirming that the borrower is the rightful owner of the eligible collateral.

Additionally, lenders must not avail loans by re-pledging gold or silver that has already been pledged to them by their borrowers.

On the valuation front, the RBI stated that gold or silver accepted as collateral shall be valued based on the reference price corresponding to its actual purity (caratage). For this purpose, the lower of:

(a) the average closing price over the preceding 30 days for gold or silver of that specific purity, or
(b) the closing price of the previous day for gold or silver of that specific purity, as published either by the India Bullion and Jewellers Association Ltd. (IBJA) or by a commodity exchange regulated by the Securities and Exchange Board of India (SEBI), shall be used.