The Reserve Bank of India (RBI) on Friday announced a major change in the rules for gold loans, giving relief to small borrowers. The RBI has now increased the loan-to-value (LTV) ratio from 75 percent to 85 percent for gold loans up to Rs 2.5 lakh.
What does a higher loan-to-value ratio mean?
This means that if you pledge gold worth Rs 1 lakh, you can now get a loan of up to Rs 85,000 instead of Rs 75,000 earlier. This move will benefit small traders and middle-class people who take gold loans to meet their short-term needs.
The Loan-to-Value (LTV) ratio decides what percentage of your gold’s value can be given as a loan. With this new RBI rule, if your gold is worth Rs 1 lakh, you will get a loan of Rs 85,000 instead of Rs 75,000.
For gold valued under Rs 2.5 lakh, borrowers can now receive up to 85 percent of the gold’s value as a loan.
Shares of gold loan companies rose
Since gold loans are processed quickly, people often use them during urgent financial needs by pledging their gold. Gold is also seen as a safe way to get money in tough times.
After the RBI’s announcement, shares of gold loan companies went up. Muthoot Finance shares rose 7 percent to Rs 2470. Manappuram Finance shares increased by 5 percent to Rs 246.48. IIFL Finance shares went up by 4.50 percent and reached Rs 452.45.
Muthoot Finance’s shares increased by 7% to Rs 2,470. Manappuram Finance shares rose by 5%, reaching Rs 246.48. IIFL Finance shares went up by 4.5%, touching Rs 452.45.
What is Loan-to-Value (LTV)?
LTV is the percentage of the gold’s value that you can borrow as a loan. According to the new RBI decision, if you have gold worth Rs 1 lakh, you can get a loan of up to Rs 85,000 (85%). This applies to gold loans up to Rs 2.5 lakh.