The RBI on Wednesday allowed banks to recover part of gold metal loan advances in physical gold. The banking regulator came out with a notification on Wednesday evening that says gold (metal) loans can be repaid in physical gold as well.
Gold Metal Loans Repaid With Physical Gold
Until now, banks that were authorised to import gold or were participating in the gold monetisation scheme, were allowed to extend gold metal loans to jewellery manufacturers and jewellery exporters. Repayment of these loans were done in rupee.
But now as per the RBI notification, banks can provide the option to the borrower to repay part of the gold metal loan in physical gold as well. RBI further said that banks shall provide an option to the borrower to repay a part of the loan in physical gold in lots of one kg or more, provided:
a. The gold metal loans (GML) has been extended out of locally sourced / GMS-linked gold
b. Repayment is made using locally sourced IGDS (India Good Delivery Standard)/LGDS (LBMA’s Good Delivery Standards) gold
c. Gold is delivered on behalf of the borrower to the bank directly by the refiner or a central agency, acceptable to the bank, without the borrower’s involvement
d. The loan agreement contains details of the option to be exercised by the borrower, acceptable standards and manner of delivery of gold for repayment
e. The borrower is apprised upfront, in a transparent manner, of the implications of exercising the option.
As per RBI’s notification banks are required to incorporate the above aspects into a board-approved policy governing GML along with concomitant risk management measures. Also, banks will have to monitor the end-use of funds lent under GML.