Question: My mother residing in India is considering obtaining a loan from a bank to purchase a residential property. The loan will be secured by gold that she inherited. I would like to know the potential loan amount she can acquire based on the gold’s valuation. What are the relevant regulations?
Answer: During the Covid pandemic, banks were allowed to provide loans up to 90% of the market value of pledged gold. However, this loan-to-value ratio has recently been adjusted to a maximum of 75% for both banks and non-banking financial companies. This limit applies to loans taken for both productive and consumption purposes.
Despite the 75% limit, financial institutions may establish a lower ratio based on their internal risk assessments. Additionally, the Reserve Bank of India plans to introduce a standardized framework for gold valuation.
Lenders will need to disclose reference prices and implement a uniform approach for determining gold purity as well as calculating both gross and net weights. This valuation procedure should be consistently applied across all branches, and the details will be made available on the lenders’ websites.
The upcoming regulations from the Reserve Bank of India will adhere to prudential norms while considering the risk appetites of banks and other financial entities. The guidelines will also emphasize evaluating borrowers’ creditworthiness and cash flow requirements.
Question: Considering the ongoing tariff conflicts, can India sustain its export growth? There are concerns that low-cost goods may inundate the Indian market, worsening the trade deficit.
Answer: The Indian Government is actively negotiating a bilateral trade agreement with the United States, aiming to reduce tariffs on both ends. This effort is grounded in the understanding that even with zero duties on US products, the more expensive nature of these goods compared to domestic products will not lead to a market saturation. Simultaneously, the government is facilitating support for exporters to seek out new markets.
The Ministry of Commerce is expediting its export promotion initiatives to assist these exporters further. Availability of bank funds with competitive interest rates is also being prioritized. Free trade agreements are in the works with the United Kingdom, the European Union, New Zealand, and Oman. Furthermore, bilateral discussions are taking place with nations such as Australia, Brazil, and France to bolster exports. To tackle concerns over excessive imports from East Asian countries, an inter-ministerial group has been established, consisting of senior officials from commerce and industry departments, to monitor the influx of consumer goods like electronics, chemicals, and steel.
This group’s role is to gather data on imported goods and assess the necessity for intervention measures. A detailed analysis of the collected data will be conducted to ensure timely responses. Thus, the government is committed to enhancing exports while managing the trade deficit effectively.
Question: Is India making progress towards creating a sustainable semiconductor ecosystem comparable to global leaders? Achieving this may be challenging without significant foreign investment.
Answer: While Taiwan has made considerable investments in establishing semiconductor operations in India, Japan and South Korea are also pursuing aggressive investments in this sector. Japanese firms are introducing advanced machinery to support the development of India’s semiconductor industry. According to the Japan External Trade Organisation (JETRO), Japan possesses a distinct advantage in machinery and materials, holding over 30% of the global market in semiconductor manufacturing equipment and 48% in components and materials, thus playing a critical role in the semiconductor supply chain. Furthermore, Japanese foreign direct investment in India surged by 700% from 2021 to 2024.
South Korea is keen to emulate Japan’s success, as it has become a leading country in semiconductor production, boasting world-class technologies. High-tech South Korean companies, leaders in the semiconductor market, are planning investments in India.
Investment from venture capitalists into Indian semiconductor startups is also on the rise, with the demand for around $7 million needed to create a chip prototype. Strategic foreign venture capital funds are investing in India’s fabless semiconductor ecosystem, which requires significant R&D expertise and has an eight-year development timeline. Therefore, external capital and technology will be pivotal for India to establish a robust semiconductor ecosystem.
HP Ranina is an attorney specializing in corporate and fiscal laws in India.