RBI Regulations

Crisil Ratings: RBI’s Revised Gold Loan Norms to Encourage NBFC Expansion

Gold loans are among the most popular loan types, particularly in rural India. Millions of people look to gold loans for rapid financing during difficult financial times. The Reserve Bank of India (RBI) has introduced new regulations for gold loans, which are expected to benefit Non-Banking Financial Companies (NBFCs) that control this lending market.

One of these modifications is a higher loan-to-value cap, which may allow for greater lending flexibility, especially for smaller ticket-size loans. As per Crisil Ratings, the changes in LTV standards may help NBFCs that focus on gold loans, but they will also provide new risk management difficulties. This blog will provide you with all the information regarding the RBI’s updated gold loan guidelines.

Gold Loans in India

A gold loan is when you borrow money from a lender using your gold jewellery as security. Usually, a specific percentage of the total cost of the gold you put in is the amount approved as the loan.

These are especially prevalent in rural India due to the absence of official credit systems.

In the organized sector, NBFCs like Manappuram Finance and Muthoot Finance control the majority of gold loans. This is due to their quicker processing, doorstep services, and less demanding documentation than banks.

RBI’s Modification to Gold Loan Guidelines

The Reserve Bank of India (RBI) has amended specific regulatory standards to enhance flexibility and assistance for lenders, particularly Non-Banking Financial Companies (NBFCs), in issuing gold loans. These amendments are intended to boost credit expansion, increase liquidity, and provide borrowers support during periods of economic uncertainty.

Key revisions in the Gold Loan guidelines are given below: –

1. Loan-to-Value (LTV) Ratio Increase for Small Loans

• The RBI increased the maximum loan-to-value (LTV) limit for low-cost gold loans.
• The maximum LTV for loans up to ₹2.5 lakh (formerly 75%) is now 85%.
• This means that instead of the prior maximum of ₹75,000, the borrower can now obtain a loan of up to ₹85,000 if the gold pledged is worth ₹1 lakh.

2. For small ticket-size loans, there is no credit appraisal

• A complete credit evaluation might not be necessary for loans under ₹2.5 lakh.
• This action is intended to make it easier for rural and low-income borrowers to get loans.

3. There are pledged limits on gold and silver

• A borrower can only pledge a total of 1 kg of gold ornaments and 10 kg of silver ornaments.
• The limit is 50 grams for gold coins and 500 grams for silver coins.
• This prohibits loans secured by unprocessed gold and silver.

4. 12-month cap on bullet repayment loans

• Now, loans with bullet repayments have to be paid back within a year.
• According to Crisil Ratings, the LTV at disbursement for bullet loans may rise from roughly 65% to 68% to 70% to 75%.
• Top-ups or renewals can only be made once all accumulated interest has been paid back.
• Bullet repayment loans are those where the entire principal and interest are repaid at the end of the loan term

5. Quicker return of gold following repayment

• The pledged gold or silver must be returned by the lender within seven working days of the loan closing.
• They have to compensate the borrower with ₹5,000 per day if they are late.

6. Open and transparent auction procedure

• If a debt default occurs:
  • Prior to holding a gold auction, lenders must provide adequate notice.
  • At least 90% of market value (85% following two unsuccessful auctions) must be the reserve price.
  • The borrower must receive the surplus from the auction back within seven business days.

7. Valuation of gold collateral

• The 22-carat purity of gold will be used to determine its value, with lower purity being adjusted.
• The lender will convert the value of your gold to an equivalent 22k weight if it is less pure (say, 18k or 20k) and then use the 22k market price to determine the loan value.

8. Provide Ownership Proof

• If purchase receipts are not accessible, borrowers must present a declaration or evidence of ownership.

Why Has the RBI Changed the Gold Loan Rules?

The modifications are intended to: –

• Help borrowers with low to moderate incomes by enabling them to obtain greater loans secured by their gold.
• Enhance access to formal credit for low-income and rural borrowers.
• Remove disparities in the practices of various lenders (banks and NBFCs).
• Increase the transparency of gold auctions to safeguard both lenders and borrowers in the event of loan defaults.
• Safeguard borrowers from any abuse and guarantee equitable treatment.

When are these Guidelines Applicable?

On April 1, 2026, new Reserve Bank of India (RBI) regulations are anticipated to go into effect, marking a significant regulatory revamp of India’s thriving gold-backed credit sector.

According to research by Crisil Ratings, the changes, which are intended to improve consumer protection and reinforce credit discipline, are probably going to have a big impact on the business models of non-banking financial companies (NBFCs), which control this specialized lending market.

What is the Impact on NBFCs?

As per Crisil Ratings estimates, loans with a ticket size of less than ₹5 lakh comprise close to 70% of the gold loan portfolio for NBFCs. For NBFCs that specialize in gold loans, particularly those that serve low-income customers, the LTV reduction is advantageous.

The NBFCs will gain from it in two main ways. These are: –

• Accrual of Cushioning Interest: The higher LTV enables NBFCs to absorb interest that builds up over time for bullet loans (principal and interest are paid back concurrently) without requiring the use of additional collateral.
• Increasing Lending Capacity: NBFCs have greater space to lend when the LTV is higher, which could increase the total amount of loans they distribute. The LTV at disbursement for bullet loans may rise slightly from the present 65–68% to 70–75%.

Risk Management Becomes Critical Amid Higher LTVs

Because the RBI decided to raise the Loan-to-Value (LTV) ratio, NBFCs are now able to make larger loans against the same quantity of gold. This lowers lenders’ margin of safety even while it helps boost lending volumes and draw in more applicants. The value of the collateral might not be sufficient to pay off the outstanding loan if gold prices decline, which could result in losses for NBFCs.

In order to control this increased risk, NBFCs need to:

• Strengthen risk management systems by establishing internal caps, keeping a careful eye on changes in the price of gold, and classifying borrowers according to their credit histories.
• In the event of defaults, NBFCs must move quickly to auction the pledged gold before its market value falls too much, guaranteeing the recovery of the debt.

Overall Sector Impact

NBFCs may need to make some early operational modifications as a result of the RBI’s relaxation of gold loan regulations. For example, they could have to train employees, change internal risk procedures, and adjust to the new LTV restrictions. However, it is anticipated that the industry would experience a very good long-term impact if these realignments are implemented.

• Credit Growth: The same gold collateral will allow NBFCs to discharge larger loan amounts. It is anticipated that this will increase loan volumes, particularly in semi-urban and rural areas where gold loans are most common.
• Inclusion of Finances: When a person has no income records or credit history, gold loans are frequently their first official credit product. More underprivileged borrowers will enter the official financial system as a result of the RBI’s action, which will make these loans more appealing and accessible.
• NBFC Profitability: If they effectively manage risks, NBFCs can boost their profits and margins through better loan book expansion, greater loans, and increased client acquisition. Over time, this results in improved bottom-line performance.

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Conclusion

The RBI’s easing of gold lending regulations, specifically the increase in the loan-to-value ratio, is a calculated move to boost credit availability and economic growth, particularly in underserved areas. This action presents NBFCs, the industry leaders in gold loans, with a chance for expansion in addition to regulatory relief.

According to Crisil Ratings, if NBFCs continue to be careful about risk management and uphold strict operational discipline, the policy adjustment is anticipated to promote loan book expansion, increase profitability, and broaden financial inclusion.

In a nation where gold serves as a financial buffer and a household asset, this reform might open up loans for millions of people while providing NBFCs with an excellent opportunity to grow responsibly.

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