Money9 Edit | Gold loans: RBI should extend unlocking of value to 90%

The lockdown and its economic devastation have prompted a rush for pledging gold jewellery to banks. In this country, gold has traditionally been recognised for its investment value besides the ornamental appeal and the common man has made full use of it in this hour of terrible crisis.

According to Reserve Bank of India data, loans given out by the banks against gold jewellery rose by a whopping 81.6% in FY21 over FY20. While loans against this collateral stood at Rs 33,303 crore in March 2020, they jumped to Rs 60,464 crore in March 2021.

On August 6, 2020, recognising the plight of the common man, RBI, very wisely, raised the loan to value ratio from 75% to 90%. Stripped of the jargon, it meant, while earlier a person could get a maximum of 75% of the value of the metal pledged as loan, henceforth he would get a maximum loan of 90% of the value.

This unlocking of the value of gold prompted more people to rush to the bank with their ornaments. But after March 31, 2021, the cap has gone back to 75%.

While the RBI step was welcome, the second wave and the rise of the cost of treatment and the need for keeping an emergency fund for medical exigencies make it necessary for this facility to be extended at least by another quarter or two till the economy revives and people get back work.

Bankers might balk at the idea, fearing how to cover their risks in case the price of the metal falls and customers default on payments. But as the second COVID wave lingers on and policy response avenues gradually get exhausted, extraordinary steps have to be taken to tackle this extraordinary crisis. Moreover, the price of gold is steadily on the rise.