"The Monetary Policy Committee in its monetary policy today announced a slew of very strong policy measures to provide further impetus to the credit growth of the economy.
Amongst the measures announced, the MPC has decided to temporarily allow all banks to increase the permissible loan to value ratio (LTV) for loans against pledge of gold ornaments & jewelry for non-agricultural purposes from the current 75% to 90% till 31st March 2020.
This is clearly being done to enable borrowers, especially small & medium businesses and households, to tide over any temporary liquidity constraints due to the impact of COVID - 19. This will help monetise the most dormant asset across classes viz. Gold, lying at home or in a bank locker and put it to more productive use. From an economy perspective, this also means more liquidity gets generated & circulated in the system.
However, with gold prices close to their peak a higher LTV does pose additional risk, and lenders may choose to offer the higher LTV to shorter tenure loans and to customers who maintain better credit discipline and hence, have a higher credit score."