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Home » Customer Info » Gold Valuation Method

Gold Valuation Method

Explaining the prospective methodology for gold loans

This write-up explains the prospective gold loan borrowers understand the methodology adopted by the Darussalam Co-operative Urban Bank for determination of net weight of gold and the price used to value the gold for determination of LTV ratio.

As per RBI guidelines, the Bank accepts only physical gold such as jewellery and coins for sanctioning Gold Loan.
The bank obtains valuation report by Gold Appraisers to verify the purity and weight of the gold being pledged with the Bank. For arriving at net weight of gold the Bank deducts weight of stones, lac, alloy, strings, fastenings, etc.
The jewellery pledged with the Bank varies in carats from item to item. So any jewellery offered as security shall be converted to 22 carats by using a formula as given below.
Formula for converting 24 carat gold into 22 carat = net weight of gold x (24/22).
Formula for converting 18 carat gold into 22 carat = net weight of gold x (18/22).
After conversion to 22 carats the Gold Appraisers calculate the market value of Gold as per the price specified by the Bank.
Every month, on the basis of average closing price of preceding 30 days of 22 carat gold as published by Indian Bullion and Jewellers Association (IBJA) the Bank decides the market price of gold.
The Bank sanctions loan up to 75% of the market value of the gold being pledged. This is called Loan-to-Value (LTV) ratio which has to be maintained throughout the tenor of the loan. It means If the market value of gold works out to Rs. 10,000/- per gram, the Bank will sanction loan up to Rs. 7,500/-.