Prelims : Current events of National and International Importance | Economy
Why in News?
The Reserve Bank of India (RBI) recently increased the loan-to-value (LTV) ratio for gold-backed loans up to Rs.5 lakh recently.
Loan-to-value Ratio -It indicates the percentage of an asset's value that a lender is willing to finance through debt.
To calculate LTV, divide the loan amount by the lower of the property's appraised value or purchase price.
LTV Ratio = (Loan Amount/Appraised Property Value) x 100.
Recent Changes by RBI- It aims to ease credit accessibility for small borrowers.
This means that individuals can now get a larger loan amount against the same value of pledged gold.
Specifically, for loans below Rs.2.5 lakh, the LTV has been raised to 85%, and for loans between Rs.2.5 lakh and Rs.5 lakh, it's set at 80%.
However, all loans above Rs.5 lakh will have an LTV of 75%, the central bank specified in its final guidelines for lending against gold and silver collateral.
RBI decided to raise that to 85% for small loans below Rs.2.5 lakhs per borrower, including interest, in the final guidelines on gold loans.
State-owned lenders have been including both interest and principal while making gold loans under the current LTV limit of 75%, but in the case of some non-bank lenders and smaller banks, the LTV was being stretched till 88%.
