With rising demand for gold loans, banks are now tightening their policies, asking borrowers to settle outstanding dues before extending their loan tenure. This move comes as financial institutions aim to reduce risk and improve repayment discipline in the secured loan segment.
Why Are Banks Enforcing This Rule?
Gold loans have been a popular borrowing option, especially among small businesses and individuals facing cash flow issues. However, banks are now taking a stricter approach due to:
✔ Rising Defaults – Some borrowers fail to repay on time, leading to increased non-performing assets (NPAs).
✔ Gold Price Fluctuations – Changes in gold prices can affect the loan-to-value (LTV) ratio, increasing risk for lenders.
✔ Regulatory Compliance – The Reserve Bank of India (RBI) has set specific guidelines on gold loan disbursement and tenure management.
What Borrowers Need to Know
If a borrower seeks a loan extension, banks are now asking them to:
🔹 Pay interest dues upfront before the extension is granted.
🔹 Partially settle the principal amount to qualify for a renewed tenure.
🔹 Ensure gold pledged meets the revised LTV criteria, especially if prices fluctuate.
How This Affects Borrowers
While the stricter norms ensure better repayment discipline, they could create challenges for borrowers facing financial difficulties. Some customers may have to liquidate other assets or seek alternative financing options if they cannot meet the repayment conditions.
Final Thoughts
Banks’ stricter stance on gold loan renewals is aimed at reducing risks and maintaining financial stability. Borrowers are advised to plan repayments carefully and explore options like gold loan balance transfer or loan restructuring if they face repayment difficulties.
Would you like insights into how different banks are handling gold loan policies?
