RBI Raises Monetary Ceiling Of Gold Loans Under Bullet Repayment Scheme For Select UCBs

The Reserve Bank of India's (RBI) Monetary Policy Committee meeting (MPC) which concluded on Friday made an important announcement with respect to gold loans that can be granted under the bullet repayment scheme in a bid to incentivize Primary (Urban) Co-operative Banks (UCBs). RBI has raised the monetary ceiling of gold loans that can be granted under the bullet repayment scheme from Rs 2.00 lakh to Rs 4.00 lakh for such UCBs who have met the overall PSL target and sub-targets as on March 31, 2023.

The RBI's statement on Developmental and Regulatory Policies said, "UCBs have been permitted an extended glide path for achievement of PSL targets, beyond March 2023. With a view to incentivising UCBs that have met the prescribed PSL targets as on March 31, 2023, it has been decided to increase the monetary ceiling of gold loans that can be granted under the bullet repayment scheme from Rs 2.00 lakh to Rs 4.00 lakh for such UCBs who have met the overall PSL target and sub targets as on March 31, 2023." The central bank said that these banks will be required to continue to meet the targets and sub-targets thereafter.

According to the Bank, detailed guidelines on the matter will be issued separately.

The PSL targets for UCBs were revised in 2020. In order to ensure a non-disruptive transition, a glide path was provided till March 31, 2024, to achieve the revised targets. With a view to ease the implementation challenges faced by the UCBs, it was decided to extend the phase-in time for achievement of the said targets by two years, i.e. up to March 31, 2026.

What is Bullet Repayment scheme?

Under the gold loan bullet repayment scheme, borrowers need to pay back the entire principal and interest amount as a lump sum to the lender at the conclusion of the loan tenure. Unlike traditional loans with monthly EMIs, this option removes the need for periodic payments during the loan term. Under this scheme, the banks have to maintain a loan-to-value ratio of 75% on the loan amount including the interest.

The RBI kept the repo rate unchanged for the fourth time in a row at 6.5% on Friday. The RBI Governor Shaktikanta Das said," After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, it decided unanimously to keep the policy repo rate unchanged at 6.50 per cent." Consequently, the standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.