• The Reserve Bank of India announced doubling the lending limits for gold loans under the bullet repayment scheme for Urban Cooperative Banks (UCBs) to Rs 4 lakh.

• The RBI decided to increase the existing limit from Rs 2 lakh to Rs 4 lakh in respect of UCBs who have met the overall target and sub-targets under the Priority Sector Lending (PSL) as on March 31, 2023.

• The measure is in line with the RBI’s earlier announcement of providing suitable incentives to UCBs that have met the prescribed PSL targets, wherein a lender is mandated to devote a certain part of its overall lending for the marginalised sector.

Bullet Repayment Scheme

• A bullet repayment scheme is one where a borrower repays interest and the principal amount at the end of a loan tenure.

• The borrower need not adhere to any EMI schedule and can simply make the entire payment when the loan term is finished. 

• The interest on the loan is calculated each month, but becomes payable only at the end of the gold loan tenure. 

• Since the borrower repays the loan in a single shot, this form of repayment of gold loan is called a bullet repayment plan.

• Under Equated Monthly Installment (EMI), a fixed amount of payment (includes principal and interest components) is made by the borrower to the lender on a specified date each month.

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