CURRENT AFFAIRS
CURRENT AFFAIRS
Description
The Reserve Bank of India (RBI) has rolled out draft regulations aimed at tightening control over gold loans and widening the scope of co-lending models. These proposed reforms are intended to unify lending norms across institutions, ensure robust risk oversight, and improve credit availability for smaller enterprises thereby contributing to broader economic progress.
Revised Guidelines For Gold Loans
Under the proposed framework, the RBI has introduced a uniform 75% cap on the loan-to-value (LTV) ratio for all financial institutions, including non-banking financial companies (NBFCs), offering gold-backed loans. The guidelines mandate that lending institutions incorporate clear policies regarding gold collateral in their overall credit risk strategies. This includes placing limits on borrower exposure and monitoring how the funds are used. Lending against raw gold or gold-related financial instruments is now restricted, and loans must not be sanctioned unless ownership of the gold can be clearly established.
Maintaining LTV Ratio
Lenders must ensure that the LTV ratio remains within the prescribed limit throughout the duration of the loan. Non-compliance will attract a 1% additional provisioning requirement. The RBI also expects institutions to conduct routine assessments of their gold loan books to verify compliance. Differentiation between loans issued for consumption versus income-generating purposes is also required. To standardise gold valuation practices, the purity and weight of gold collateral must be assessed uniformly across all branches.
Expansion Of Co-Lending Beyond Priority Sector Loans
A key development in the draft is the extension of co-lending arrangements to include non-priority sector loans. This allows banks and NBFCs to jointly provide credit to a broader base of borrowers, including underserved micro-enterprises. Previously limited to priority sectors, the updated co-lending guidelines aim to create more inclusive financing opportunities for businesses that traditionally face difficulty accessing bank credit.
Eased Norms For Credit Enhancement
The draft policy also proposes more lenient requirements for credit enhancement to support regulated entities. The minimum capital to back credit enhancements has been reduced, and the upper cap on credit enhancements has been raised from 20% to 50% of the bond issuance. This move is expected to help infrastructure developers enhance their creditworthiness and gain easier access to capital markets. Funds raised through these bonds can now be used to repay existing loans, unlocking capacity for fresh credit.
Implications For Lending Ecosystem
The RBI’s draft guidelines are seen as a significant step toward a more disciplined and transparent lending environment. By standardising gold loan operations and enabling wider co-lending partnerships, the proposed changes aim to reduce systemic risk and boost credit penetration among small businesses. Industry experts believe that these reforms will promote a healthier financial ecosystem while supporting sustainable economic growth.
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