Reserve Bank of India (RBI) has allowed banks to sanction loans of up to Rs 1 lakh against pledge of gold ornaments and jewellery.

"In response to suggestions from banks and with a view to ensuring a level playing field among various market participants, it has been decided to permit bullet repayment of loans extended against pledge of gold ornaments and jewellery for other than agricultural purposes...," RBI said in a notification.

Bullet repayment means a lump sum payment for the entire loan amount paid at the time of maturity.

The RBI in May had imposed restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs and mutual funds.

Also banks were asked to ensure that the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the board approved limit.

As per today's RBI notification, the period of the loan should not exceed 12 months from the date of sanction.

Interest will be charged to the account at monthly but will become due for payment along with principal only at the maturity, it said.

Banks will recognise interest income on such loans in their profit and loss account only on collection, RBI added.

Banks should prescribe a minimum margin to be maintained in case of such loans and accordingly, fix the loan limit taking into account the market value of the security (gold ornaments), expected price fluctuations, interest that will accrue during the tenure of the loan etc, it said.

It further said, the account would be classified as non-performing asset (sub-standard category) even before the due date of repayment, if the prescribed margin is not maintained. (PTI/Indian Express)