The RBI on Friday announced to increase limit for gold loans under the bullet repayment scheme from Rs 2 lakh to Rs 4 lakh in respect of urban cooperative banks that have met targets and sub-targets under the priority sector lending as on March 31, 2023.
The RBI allowed bullet repayment of gold loans up to Rs 1 lakh in 2007, which was increased to Rs 2 lakh in 2014, with the repayment being restricted to 12 months.
Under the bullet repayment scheme, the principal and interest on a loan are paid in lump sum by a borrower to a lender at the end of the loan tenure.
Vivek Iyer, partner at Grant Thornton Bharat, said, “The RBI guidance to reward lenders (Urban Co-operative Banks) who have made priority sector targets to provide these products, is the right incentive structure and a step in the positive direction.”
He added that bullet repayment schemes provide the flexibility to the borrower to use the funds that have been borrowed for a longer tenure with repayments being made only towards the end of the loan tenure. This allows the borrower to redeploy the funds that have been generated from his business back into to the business. The MSME segment usually has shorter working capital cycles and Gold Loans with bullet repayment schemes provide them greater flexibility.
Anuj Arora, co-founder & COO of gold loan platform aggregator SahiBandhu, said, “We welcome the RBI’s progressive move with the gold loan bullet product. This progressive step of increasing the limit for gold loans bullet product from Rs 2 lakh to Rs 4 lakh in respect of urban cooperative banks will prove to be beneficial for customers in not only easing financial strain but also enabling them to benefit from formal lending sources.”
He added that this will foster financial inclusivity and enhance opportunities for all.
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