Gold loan repayment: The RBI on Wednesday asked banks to provide an option to jewellery exporters and domestic manufacturers of gold jewellery to repay a part of Gold (Metal) Loans (GML) in physical gold.

As per the extant instructions, banks authorised to import gold and designated banks participating in Gold Monetisation Scheme, 2015 (GMS) can extend GML to jewellery exporters or domestic manufacturers of gold jewellery.

The Reserve Bank of India (RBI) has asked banks to provide jewellery exporters/ domestic manufacturers of gold jewellery an option to repay a part of the Gold (Metal) Loan (GML) in physical gold in lots of one kg or more.

Currently, these loans are repaid in Rupees, equivalent to the value of gold borrowed, on the relevant date/s.

However, after this notification, the RBI says that banks can provide the option to the borrower to repay part of the gold (metal) loan in physical gold as well.
RBI goes on to say that the repayment can be done in lots of 1 kilogram or more, also repayment will have to be done in locally sourced India gold delivery standards or LBMA certified gold. Also, the gold delivery will have to be done to the bank, directly by the refiner or the central agency on behalf of the borrower. The borrower cannot be a part of this repayment that would be coming into the banks.

The gold metal loans (GML) has been extended out of locally sourced / GMS-linked gold
b. Repayment is made using locally sourced IGDS (India Good Delivery Standard)/LGDS (LBMA’s Good Delivery Standards) gold
c. Gold is delivered on behalf of the borrower to the bank directly by the refiner or a central agency, acceptable to the bank, without the borrower’s involvement
d. The loan agreement contains details of the option to be exercised by the borrower, acceptable standards and manner of delivery of gold for repayment
e. The borrower is apprised upfront, in a transparent manner, of the implications of exercising the option.

As per RBI’s notification banks are required to incorporate the above aspects into a board-approved policy governing GML along with concomitant risk management measures. Also, banks will have to monitor the end-use of funds lent under GML.