New financial lifeline: Silver now acceptable for bank loans

THIRUVANANTHAPURAM: Starting April 1, residents in Kerala can pledge silver jewellery and coins for loans at cooperative banks. This follows a landmark approval from the Reserve Bank of India (RBI), marking the first time a metal other than gold has been authorised for such credit facilities in the state.

While proposals for silver-backed loans are currently being considered by commercial banks and other financial institutions, no final decisions have been reached for those sectors.

Key loan regulations

The RBI revised these pledge conditions primarily to provide a regulated alternative to private moneylenders, who often charge exorbitant interest rates. The new guidelines include:

• Loan-to-Value (LTV) Ratio: Borrowers can secure loans for up to 85% of the silver's market value, contingent upon purity.
• Verification: Banks are mandated to verify both the weight and the purity of the silver articles.
• Valuation Standards: To ensure transparency, the value will be determined by the lower of two figures:
  1. The 30-day average price of silver.
  2. The previous day's closing price as published by the India Bullion and Jewellers Association (IBJA) or a SEBI-regulated commodity exchange.

Industry outlook

Kerala Bank is set to lead the rollout by launching silver loan products on the effective date. However, leadership remains cautious regarding immediate market reception.

"Kerala Bank will launch silver as a product starting April 1. There is some uncertainty regarding the level of demand, as the trend of purchasing and holding silver jewellery is significantly lower in Kerala compared to gold."

— Jorty M. Chacko, CEO of Kerala Bank