Jewel Loan Rule Spells Debt Trouble for Customers

A recent policy change introduced by the Reserve Bank of India regarding repayment of jewel loans has cast a new financial burden on the loanees and created windfall gain for loan sharks who charge even up to ₹2,000 interest per lakh for two days (about 365% per year).

- Jeyalakshmi Ramanujam

Hitherto, banks allowed customers to renew their jewel loans after 12 months by just paying their interest alone. It was not mandatory to repay the loan principal to renew their loans. However, since last October, banks have made it mandatory for customers to pay the entire loan amount with interest after 12 months to re-pledge the loan for the next 12 months.

Moreover, the jewel loan, once closed, can be reopened only on the next working day. If customers fail to renew their loan as per this revised mandate, the banks can auction the jewels to recover their loan dues of principal and interest. This has landed the customers in a new debt trap as loan sharks, across Tamil Nadu, have started lending money at exorbitant interest rates for a few days to help people renew their loan accounts by paying the principal and the interest accrued.

S Syed, a customer from Madurai, told TNIE he took a gold loan for ₹15 lakh from a nationalised bank by pledging 320g of gold at 9% interest.