The Reserve Bank of India, in line with Priority Sector Lending criteria, has elevated the maximum threshold for gold loans within the Bullet Repayment Scheme from Rs 2 lakh to Rs 4 lakh for Urban Co-operative Banks. Initially, in 2007, the RBI authorised bullet repayment of gold loans up to Rs 1 lakh, which was subsequently augmented to Rs 2 lakh in 2014, with a repayment period capped at 12 months.
Urban Co-operative Banks have the prerogative to extend gold loans through both the Bullet Repayment and Equated Monthly Instalment (EMI) Repayment channels for a duration of 12 months. In the former, borrowers settle the principal and interest collectively in a lump sum to the lender at the end of the loan term. Conversely, in the EMI method, a fixed sum encompassing both principal and interest components is remitted by the borrower to the lender on a designated date each month.
Urban Co-operative Banks hold an advantageous position as their clientele primarily comprises middle-class and lower-middle-class individuals who are more inclined towards availing gold loans. Consequently, regulatory directives in this context should foster the expansion of this segment within Urban Co-operative Banks.
Colin Shah, Managing Director of Kama Jewelry, remarked, "The increase in the gold loan limit from Rs 2 lakh to Rs 4 lakh for urban cooperative banks will be advantageous for customers, especially during the upcoming wedding season."