In India, there is significant rise in the number of people who present gold to the bank in the form of jewellery or gold biscuits or other form and take loan in the form of cash in return.
But due to this increase in this trend, Reserve Bank of India (RBI) has imposed certain restrictions on lending money to the public using such means. According to the new norms issued by RBI, loans can only be given up to 60% of the value of jewellery, gold biscuits, bar loans and coins.
It was also said by the central bank that the finance companies that do a business and specialize in giving out loans against gold will need to have a net worth that is at least 12% of the total risk exposed while giving out the loan.
This move by RBI would hit small borrowers with a hot iron nail, as they would be compelled to take loans from unregulated moneylenders as they would be getting higher amount of money against their gold. Earlier than this, RBI also withdrew the priority sector status to gold loan finance companies. Priority Sector Status is a status that encouraged banks to give money to the borrowers.
According to many people, this move by RBI is set to discourage investment in gold, due to which there is a huge drain on the foreign exchange resources. This move by RBI, is a quick action by RBI taken only within a week after the Finance Minister declared that the import duty on gold would be doubled.
Many lenders however are still of the opinion that whatever the rules RBI impose, there would be no impact on the demand. Initially, there would be some impact of this rule imposed by RBI, but as time progresses, there would be hardly any effect on the demand.
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