The banks in India have decided to revisit the lending norms on gold following extreme volatility in prices. According to sources, various banks have come up with new criteria for lending in order to safeguard their loan book against fall in gold prices. Most banks in the country have reduced the Loan against Value (LTV) on gold. The banks are reportedly keeping an eagle eye on the existing gold portfolios.
Federal Bank with deep inroads in Southern India, has decided to reduce its LTV from earlier 70-75% to 60%. The reduced LTV will be applicable for all gold loans with one-year tenure. However, the bank also announced that it will soon launch short-tenure loans with higher LTV ratios. The loan tenure will range from one month to three months.
Meanwhile, Indian Bank has decided to revalue its collateral assets on a daily basis with respect to daily gold prices. If the allocated loan amount exceeds the eligible sum, the borrowers will be asked to place additional collateral or prepay the additional sum of money. The bank has introduced more cautious approach in monitoring their gold loan portfolio. According to the bank, the move is incorporated so as to put a stop to any risk that may arise due to falling gold prices.
According to senior bank officials, the loan availed by pledging gold as collateral has declined sharply during recent times. The customer are seen reluctant to pledge gold ornaments as they receive only lesser amount of money on account of falling gold prices and reduced LTV. With gold price forecasts by various agencies hinting at further lower levels to come for gold in upcoming months, the banks expect huge drop in gold loan business in the country. The weak business trend is likely to sustain until gold makes a rebound from its lower levels.