Why stringent restrictions when there is gold?

For ordinary people, the greatest benefit of gold is that it can be used as a mortgage when money is scarce. This may be the main reason why gold has become a major bargaining point in the wedding market. Gold lending has now become more liberal as deposits in banks have accumulated and lending conditions have been tightened. That is how banks started lending even huge sums on gold as collateral. Even if the loan is not repaid, there is a lot of competition between the banks to give the gold loan as the gold can be auctioned off to collect the arrears. The presence of nationalized banks in the gold lending sector, which was almost monopolized by private banks and non-bank institutions, is also evident today.

Meanwhile, the Reserve Bank of India (RBI) has come up with some stringent terms for gold lending by urban co-operative banks. It is difficult to understand the motive behind a condition that is so bizarre and unreasonable. The proposal is to take back the pledged gold after ninety days. Currently the customer is allowed to renew it with interest. The decision was made not to provide that facility anymore. The order prohibiting the renewal of the mortgage loan has come into force. Setting the loan term at three months is a regressive policy. In other banks the loan term is six months or one year. If required, the loan can be renewed with interest till then. According to the new rules applicable to urban banks, the gold loan period is three months. If the loan is not repaid within three months thereafter, the mortgagor will be considered as defaulter. Gold loans will be limited to non-performing loans. And this will be a black mark when you have to take a loan from any other financial institution in the future.

Most gold loans are for small amounts. People rush to financial institutions with gold in case of emergency. Loans are usually made only after the purity of the gold has been confirmed several times. Gold loans are considered to be the safest loan as the bank does not incur any losses even after maturity. There is a general concern that the new regulation now imposed by the Reserve Bank on urban banks will soon be extended to other banks. There seems to be no reason other than the goal of completely removing gold mortgagors from urban banks. There may be plans to gradually bring other banks along this path. This is an arrangement that indirectly helps private lenders that charge exorbitant interest rates. Although the Reserve Bank of India (RBI) has imposed restrictions on gold lending rates, private lenders charge higher rates than banks. Those concerned should be prepared to reconsider the new rules that harasses urban banks.