Loan-to-Value (LTV) Ratio: The RBI has set a maximum LTV ratio for gold loans at 75%. This means that borrowers can get a loan amount up to 75% of the market value of the pledged gold.
KYC and Documentation:
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- Lenders must follow strict Know Your Customer (KYC) norms. Borrowers are required to provide identity proof (such as an Aadhaar card, PAN card, or passport) and address proof (such as utility bills or rental agreements).
- Proper documentation, including a loan agreement detailing the terms and conditions, must be provided to the borrower.
Interest Rates and Charges:
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- Interest rates on gold loans can vary among lenders but must be communicated to the borrower at the time of loan sanction.
- Additional charges, such as processing fees, valuation fees, and prepayment penalties, should be transparent and agreed upon by both parties.
Valuation of Gold:
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- The valuation of the pledged gold must be done by certified and authorized valuers to ensure fair pricing.
- Lenders must follow RBI-approved methods for gold valuation, typically based on the prevailing market rates of gold.
Storage and Security:
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- Lenders are responsible for the safe custody of the pledged gold. The storage facilities must be secure and insured against theft, fire, and other risks.
- Borrowers must be informed about the storage conditions and insurance coverage.
Repayment Terms:
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- The repayment schedule, including the tenure, EMI amounts, and interest rates, must be clearly defined in the loan agreement.
- Borrowers should have the option to prepay the loan, and any associated charges should be disclosed upfront.
Auction of Gold:
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- If a borrower defaults on the loan, lenders have the right to auction the pledged gold to recover the outstanding amount.
- However, lenders must provide prior notice to the borrower before initiating the auction process. The auction must be conducted transparently, and any surplus amount after settling the loan and associated costs should be refunded to the borrower.
Loan Tenure: Gold loans typically have shorter tenures ranging from a few months to a few years. The specific tenure should be agreed upon between the borrower and the lender.
NBFCs and Banks: Both banks and Non-Banking Financial Companies (NBFCs) can offer gold loans. However, NBFCs dealing primarily in gold loans must follow additional RBI guidelines specific to NBFC operations.