RBI doubles UCB gold loan limit to ₹4 lakh

The Reserve Bank of India (RBI) has made an important announcement regarding gold loans offered by urban cooperative banks (UCBs). They have decided to double the lending limits for gold loans under a specific repayment scheme.

Doubling of Gold Loan Limits

• RBI has decided to increase the existing limit for gold loans under a scheme called “bullet repayment” from Rs 2 lakh to Rs 4 lakh for urban cooperative banks.
• This change is applicable to UCBs that have met certain lending targets in the Priority Sector.

What is a Bullet Repayment Scheme?

In a bullet repayment scheme, borrowers don’t need to worry about repaying the loan during its tenure. They only repay the interest and the principal amount at the end of the loan term.

Incentives for Meeting Lending Targets

• RBI Governor Shaktikanta Das stated that this decision is in line with RBI’s earlier promise to provide incentives to UCBs that meet specific lending targets.
• These targets are related to lending to marginalized sectors of the population.

Effective Date

• The new limits for gold loans are effective from the date of the RBI’s announcement.

Comprehensive Regulatory Framework for Project Finance

• RBI also announced that they will be issuing a comprehensive set of rules and guidelines for project finance.
• These rules aim to strengthen the existing framework for overseeing projects that are under development. Detailed draft guidelines will be released for public comments.

Credit Risk Mitigation Instruments for Non-Bank Lenders

• Non-bank lenders in the “middle and base layers” will now be allowed to use Credit Risk Mitigation instruments to reduce their exposure to counterparty risk.
• This change brings them in line with similar regulations already applicable to other lenders.

Card-on-File Tokenisation (CoFT)

• RBI is considering introducing a new facility called Card-on-File Tokenisation (CoFT) at the issuer bank level.
• This would make e-commerce transactions more convenient by enhancing the security of card data.

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