Gold Loan Limit Hiked Under Bullet Repayment Scheme, Know What is it?

The Reserve Bank of India (RBI) on Friday announced an increase in the maximum limit for gold loans under the bullet repayment scheme from Rs 2 lakh to Rs 4 lakh, specifically for certain urban co-operative banks.

This decision comes as a reward for urban co-operative banks that have successfully met the prescribed priority sector lending (PSL) targets as of March 31, 2023.

RBI’s statement on October 6 outlines this development and mentions that eligible urban co-operative banks must continue to meet the PSL targets in the future.

“UCBs have been permitted an extended glide path for the achievement of PSL targets, beyond March 2023. With a view to incentivising UCBs that have met the prescribed PSL targets as on March 31, 2023, it has been decided to increase the monetary ceiling of gold loans that can be granted under the bullet repayment scheme from Rs 2.00 lakh to Rs 4.00 lakh for such UCBs who have met the overall PSL target and sub targets as on March 31, 2023,” RBI said.

These banks will be required to continue to meet the targets and sub-targets thereafter. Detailed guidelines on the matter will be issued separately,” it added.

RBI Governor Shaktikanta Das, while discussing the decisions made by the RBI Monetary Policy Committee on October 6, 2023, noted that this measure is in line with the central bank’s commitment to providing suitable incentives to urban co-operative banks that have met their priority sector lending targets.

What is Bullet Repayment scheme and how does it work?
Under the gold loan bullet repayment option, borrowers are required to repay the entire principal and interest amount at the conclusion of the loan tenure.

Unlike traditional loans with monthly EMI schedules, this option eliminates the need for periodic payments during the loan term.

However, it’s important to note that the interest on the gold loan is calculated monthly throughout the tenure, and the borrower is obligated to make a single payment of the total principal and interest at the end of the loan term.