Several borrowers are taking out gold loans to supplement their monetary reserves during the Covid-19 outbreak. The rise in the price of the yellow metal has boosted demand. This allows borrowers to get a larger loan amount for the same amount and grade of gold. In addition, the Reserve Bank of India (RBI) has now enabled banks to have an LTV (loan to value ratio) of up to 90% on gold loans.
LTV is the percentage of the loan amount that the lender may provide borrowers. This sum is calculated using the gold value provided as security. The LTV on the yellow metal for NBFCs (non-banking financial organizations) is up to 75%. If the LTV exceeds this level, the lender may approve prepayment. Let us understand it better before you apply for a gold loan online.
Investments That Are More Secure
The administration has unveiled a number of economic stimulus initiatives. This was done with the goal of increasing market liquidity. In addition, the Reserve Bank of India (RBI) imposed a ban on loan repayments. As a result of the dropping interest rates on other assets, numerous investors believed it was preferable to invest in gold. Also, the stock markets were turbulent.
Increase in the Price of Gold on the International Market
The international price of gold has a significant impact on the gold price in India. The price of the prior metal increased in the worldwide market due to an increase in the number of Covid-19 cases throughout the world, a global economic slump, and an increase in US-China tensions.
Rate of Change of Currency
The Indian Rupee has dropped dramatically since the shutdown began. As a result, fluctuations in the exchange rate had an effect on the gold price. When gold imports are high and the exchange rate is high, the precious metal price rises as well.
Impact of Gold Price Changes on Ltv and Gold Loan Amount
The price of gold steadily steadied after an initial increase in the precious metals price. The decrease in pricing resulted in a number of results. It’s vital to remember that as the price of gold lowers, so does the quantity of money that may be borrowed. The bank may request a partial prepayment on an existing loan from an existing borrower. However, this is only likely if the price of the yellow metal falls significantly.
Here’s a More In-Depth Look at the Likely Outcomes:
- Part-prepayment: In the event of a demand loan, the lender can seek a part-prepayment at any moment. When the LTV rises as a result of a gold price correction, this is a possibility.
- Additional Collateral: The lender may also want additional collateral from the borrower. This is in order to lower the loan-to-value ratio to a more manageable level.
To determine the gold value in the gold loan Surat, the financial institution may look at the previous month’s records. Depending on which is cheaper, they can look at either the current price or the moving average price. This procedure enables the lender to take the required measures in the event of any short-term price volatility in gold.