Gold and metal loans can now be repaid with physical gold

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New Delhi: RBI on Wednesday allowed banks to repay part of gold loans in the form of physical gold. The banking regulator issued a notice on Wednesday evening, which said that loans for gold (metal) can also be repaid in physical gold.

Until now, banks that were authorized to import gold or participated in a gold monetization scheme were allowed to provide gold loans to jewelry manufacturers and their exporters. These loans were repaid in rupees.

But now, according to the RBI notice, banks can provide the borrower with the option to repay part of the gold loan with physical gold as well.

RBI also stated that banks should provide the borrower with the option to repay part of the loan in physical gold in lots of one kg or more, provided:

but… Gold and Metals Loans (GML) were provided with locally sourced gold / gold tied to the GMS.
b… Redemption is made using local IGDS (India Good Delivery Standard) / LGDS (LBMA’s Good Delivery Standards) gold.
c… Gold is delivered on behalf of the borrower to the bank directly by the processor or by a central agency acceptable to the bank, without the involvement of the borrower.
d… The loan agreement contains details of the option to be exercised by the borrower, acceptable standards and how the gold will be delivered for redemption.
e… The borrower is transparently informed in advance of the consequences of exercising the option.

The RBI notice requires banks to incorporate the aforementioned aspects into board-approved GML policies, along with appropriate risk management measures. In addition, banks will have to control the end use of funds provided under the GML.

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