The Reserve Bank has relaxed the limit of loan that banks can sanction against the pledging of gold ornaments and jewellery.
"Banks, as per their Board approved policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end uses," RBI said in a notification.
Banks were earlier restricted to offer loans of up to Rs 1 lakh against pledge of gold ornaments and jewellery.
The apex bank said it has received representations from banks requesting to increase the prescribed ceiling and to review other conditions applicable for loans against pledge of gold ornaments and jewellery, where both interest and principal are payable at maturity.
The Loan to Value (LTV) shall be maintained at 75 per cent throughout the tenure of the loan, which means that the borrower will get loan only to the extent of 75 per cent of the value of gold pledged.
Interest will be charged to the account on monthly basis and may be recognised on accrual basis provided the account is classified as 'standard' account, RBI said, adding that the norm would also apply to existing loans.