RBI pushes loans against gold to 90% of value amid Covid-19 crisis

In his bi-monthly monetary policy address on Thursday, Reserve Bank of India (RBI) governor Shaktikanta Das announced easing of gold loan guidelines – a move that will enable lenders to give out more loan against jewellery. As per the latest guidelines, loans against gold have been upped to 90 percent, as opposed to previously fixed 75 percent, of the value of the precious metal. The decision has been taken in the view of the Covid-19 and to mitigate its impact, the RBI governor stated.

Gold-backed loans are gaining traction, becoming more popular with banks amid the Covid-19 crisis. The yellow metal has traditionally been regarded as a safer mode of investment and borrowing as opposed to other options.

Gold is often used as a safe store of value during times of political and financial uncertainty. Historically, amid economic turmoil, gold has delivered positive returns when the equities face a slump.

After the meeting of its six-member Monetary Policy Committee (MPC), the RBI on Thursday decided to leave the repo and reverse repo rates unchanged. While the repo rate continues to be at four percent, the reverse repo rate remains unchanged at 3.3 per cent.

In a bid to boost the economy amid the pandemic, the MPC had cumulatively cut the repo rate by 115 basis points previously over two meetings, resulting in total policy rate reduction of 250 basis points since February 2019.