CHENNAI: After a section of the gold loan customers of the cooperative banks in the state expressed difficulty in repaying the principal and interest on monthly basis as per the recent directive of Reserve Bank of India (RBI) for jewel loans above Rs 2 lakh, the cooperation department has approached the RBI through NABARD, requesting relaxation of the monthly repayment norms.
The revised norms had come into force from December last year.
According to officials from the department, bullet gold loans — typically repaid in full at the end of 12 months — are capped at Rs 2 lakh based on the borrower’s profile. However, loans exceeding Rs 2 lakh have to be repaid through equated monthly installments (EMIs), covering both principal and interest over a 12-month period.
“Traditionally, many farmers who lack land documents opt for gold loans at an interest rate of around 9.5%. Depending on their capacity, they repay interest every three to six months, or annually. Under the new RBI rule limiting gold loan tenure to 12 months, customers borrowing up to Rs 2 lakh have been closing and re-pledging loans the next day. But those with loans above Rs 2 lakh don’t have that flexibility and are required to pay EMIs,” an official explained.
These borrowers have expressed their inability to manage the high EMIs and have often got into verbal duels with the banking staff. “For loans above Rs 2 lakh, the EMI burden is significant and unaffordable for many. We have submitted a request to the RBI through NABARD, seeking leniency in repayment conditions,” the official added.
Currently, 933 branches under 23 Central Cooperative Banks and 55 branches of the Tamil Nadu State Apex Cooperative Bank fall under RBI regulations and must follow the new gold loan norms. However, village-level credit societies are exempt from these rules.
Gold loans account for 65% of loans given by cooperative banks and nearly 60% of those are non-bullet loans exceeding Rs 2 lakh.
For the unversed, a bullet loan is a type of loan whose principal (that is, the amount borrowed) must be paid in one single payment when the period of the loan ends.
A non-bullet loan (also called, amortising loan) is a loan which is paid in small regular amounts that reduce both the money borrowed and the interest payments.