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Gold Loans on a Tight Leash: RBI’s Surprise Move Sparks Industry Jitters

Updated: May 07, 2025 10:35

Image Source: My Mudra
The Reserve Bank of India’s proposed rules on gold loans are set to shake up the booming gold loan market, especially for non-banking financial companies (NBFCs), which have driven much of the sector’s recent growth.
 
Key Highlights:
  • Stricter LTV Enforcement: The RBI’s draft guidelines cap the loan-to-value (LTV) ratio at 75% throughout the loan’s tenure, not just at disbursal. For bullet repayment loans, the LTV must now consider total repayable amounts, including accrued interest, rather than just the principal. This effectively reduces the amount NBFCs can lend against gold, with Crisil estimating disbursal LTVs may drop from 65-68% to 55-60%.
  • Growth Impact: Gold loans surged over 50% in FY25, with banks doubling their portfolios. However, the new rules are expected to slow NBFC growth as they recalibrate lending practices, cut disbursement values, and potentially shift toward EMI-based products or periodic interest collection.
  • Operational and Compliance Burden: NBFCs must now implement tighter gold valuation, purity checks, and end-use monitoring, along with stricter renewal and top-up processes. Renewals/top-ups on bullet loans will only be allowed after full interest repayment, reducing borrower flexibility.
  • Market Reaction: Shares of leading gold loan NBFCs like Muthoot and Manappuram fell sharply after the announcement, reflecting investor concerns over future growth and profitability.
  • Competitive Landscape: While banks already comply with many of these norms, NBFCs-who often offered higher LTVs-face the biggest adjustment. The sector may also see intensified competition from banks and informal lenders.
  • Industry Response: While some see long-term benefits in harmonization and consumer protection, most analysts agree the near-term effect will be a slowdown in NBFC gold loan growth and a squeeze on margins.
Sources: The Economic Times, Upstox, CNBC-TV18, The Hindu BusinessLine, Rediff Business

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