Urban co-op banks seek increase in gold loan limit from Rs. 2 lakh to Rs. 5 lakh

Urban cooperative banks (UCBs) have sought enhancement in the ceiling on loans against gold and gold jewellery from Rs. 2 lakh to Rs. 5 lakh under the bullet payment scheme to meet the funding requirements of small/marginal borrowers.

Jyotindra Mehta, President, National Federation of Urban Cooperative Banks & Credit Societies (NAFCUB), observed that bullet payment method was permitted by the Reserve Bank of India (RBI) after persistent requests from the UCB sector.

The RBI permitted bullet repayment of gold loans up to Rs. 1 lakh to start with (in 2007), which was increased later to Rs. 2 lakh in 2014, with the repayment being restricted to 12 months. “The time is ripe now for regulations in this regard to be more liberal and supportive to enable banks to face competition,” said Mehta.

UCBs are allowed to extend gold loans under bullet repayment and Equated Monthly Instalment (EMI) repayment routes for 12 months.

Under bullet repayment, the principal and interest on a loan are paid in lump sum by a borrower to a lender at the end of the loan tenure.