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Guidelines on Bullet Repayment of Gold Loans of UCBs

Reserve Bank of India (RBI) has revised the guidelines on bullet repayment of gold loans sanctioned by Primary (Urban) Co-operative Banks (UCBs).

What is bullet repayment?

The loans with bullet repayment option are the once where the interest is charged to the account on monthly basis, however, the entire outstanding amount (i.e. principal + interest) is repaid in one lump sum at the end of the loan tenure. 

What were the previous instructions on bullet repayment of gold loans?

Reserve Bank of India (RBI) had, in November 2007, permitted bullet repayment of gold loans sanctioned by Primary (Urban) Co-operative Banks (UCBs) subject to the following guidelines –

  • The amount of gold loan sanctioned should not exceed ₹1 lakh at any point of time.
  • The period of the loan shall not exceed 12 months from the date of sanction.
  • Interest shall be charged to the account at monthly rests but shall become due for payment along with principal only at the end of 12 months from the date of sanction.
  • The bank should prescribe a minimum margin to be maintained in case of such loans and accordingly, fix the loan limit taking into account the market value of the security (gold / gold ornaments), expected price fluctuations, interest that will accrue during the tenure of the loan etc.
  • Such loans shall be governed by the income recognition, asset classification and provisioning norms which shall be applicable once the principal and interest become overdue.
  • The account should be classified as Non Performing Asset (NPA) (sub-standard category) even before the due date of repayment, if the prescribed margin is not maintained.

The limit for gold loans with bullet repayment options was increased in October 2014 from ₹1 lakh to ₹2 lakh subject to the following guidelines –

  • The period of the loan shall not exceed 12 months from the date of sanction.
  • Interest shall be charged to the account at monthly rests but shall become due for payment along with principal only at the end of 12 months from the date of sanction.  
  • Banks should maintain a Loan to Value (LTV) ratio of 75% on the outstanding amount of loan including the interest on an ongoing basis, failing which the loan shall be treated as NPA.
  • Gold jewellery accepted as security / collateral shall be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd. If the gold is of purity less than 22 carats, the bank should translate the collateral into 22 carat and value the exact grams of the collateral. 

What are the revised instructions on bullet repayment of gold loans?

RBI has now increased the monetary ceiling of gold loans that can be granted under the bullet repayment scheme, from ₹2 lakh to ₹4 lakh for those UCBs who have met the overall Priority Sector Lending (PSL) target and sub targets as on March 31, 2023 and continue to meet the targets and sub-targets as per the revised timelines for achievement of PSL targets.

What are the PSL targets for UCBs?

The PSL targets for UCBs were revised in 2020. In order to ensure a non-disruptive transition, a glide path was provided till March 31, 2024 to achieve the revised targets as below –

Financial Year ended March 31, 2021 March 31, 2022 March 31, 2023 March 31, 2024
Overall PSL Target*

45%

50%

60%

75%
Sub-target* for advances to weaker sections 10% 11% 11.50% 12%
* As a percentage of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-balance Sheet Exposure (CEOBSE), whichever is higher.

With a view to ease the implementation challenges faced by the UCBs, it was decided to extend the phase-in time for achievement of the targets by 2 years, i.e. upto March 31, 2026 as below –

Financial Year ended March 31, 2024 March 31, 2025 March 31, 2026
Overall PSL Target*@ 60% 65% 75%
Sub-target* for advances to weaker sections# 11.50% 11.75% 12%
* As a percentage of ANBC or CEOBSE, whichever is higher.
@ The targets for March 31, 2023 (at 60 %) shall continue till March 31, 2024.
# The sub-target set for March 31, 2023 (at 11.50%) shall continue till March 31, 2024.

Further, it was decided to provide suitable incentives to UCBs that have met the prescribed targets as on March 31, 2023. Accordingly, the monetary ceiling of gold loans that can be granted under the bullet repayment scheme has been increased from ₹2 lakh to ₹4 lakh for such UCBs.


References

Reserve Bank of India. (2007, November 26). ”Gold Loan Payment-UCBs". Retrieved from https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=3955&Mode=0

Reserve Bank of India. (2014, May 09). 'Advance against Pledge of Gold/ Silver Ornaments'. Retrieved from https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8873&Mode=0

Reserve Bank of India. (2014, October 30). 'Gold Loan – Bullet Repayment - UCBs'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9307&Mode=0

Reserve Bank of India. (2020, September 04). 'Master Directions – Priority Sector Lending (PSL) – Targets and Classification (Updated as on July 27, 2023)'. Retrieved from https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11959

Reserve Bank of India. (2023, October 06). 'Gold Loan – Bullet Repayment – Primary (Urban) Co-operative Banks (UCBs)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12542&Mode=0

Reserve Bank of India. (2023, June 08). 'Priority Sector Lending (PSL) targets / sub-targets and contribution against shortfall in achievement of PSL targets – Primary (Urban) Co-operative Banks (UCBs) - Extension of time'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12515&Mode=0


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