India’s Gold Loan Market Faces Overhaul As RBI Tightens Lending Norms

India’s booming gold loan sector is set for a significant transformation following the Reserve Bank of India’s (RBI) new regulatory framework, which mandates stricter underwriting practices and tighter loan-to-value (LTV) norms. According to S&P Global Ratings, the changes will compel lenders—especially non-banking financial companies (NBFCs)—to revamp their business models and brace for higher operational costs in the near term.  

Key regulatory changes and implications  

- Lenders must shift from collateral-based lending to cash flow-based credit assessments, particularly for loans above Rs 2.5 lakh  
- The revised LTV ratios are now tiered: 85 percent for loans up to Rs 2.5 lakh, 80 percent for Rs 2.5–5 lakh, and 75 percent for loans above Rs 5 lakh  
- Interest components are now included in LTV calculations, potentially reducing the net disbursal amount to borrowers  
- The new norms take effect from April 1, 2026, giving lenders time to adapt their systems and train staff accordingly  

Impact on NBFCs and gold loan specialists  

- NBFCs like Muthoot Finance and Manappuram Finance, which have large gold loan portfolios, are expected to face the steepest adjustments  
- These firms will need to invest in training loan officers to assess borrower income and repayment capacity, a shift from their traditional reliance on gold valuation  
- The upfront cost of compliance and operational restructuring could weigh on profitability in the short term  
- As lenders explore new loan structures and broaden their risk appetite, the sector may become more vulnerable to gold price volatility  

Borrower-centric reforms and protections  

- For loans below Rs 2.5 lakh, detailed credit appraisals will not be required, improving access for rural and low-income borrowers  
- Bullet repayment loans must now be repaid within 12 months, reducing rollover risks  
- Lenders must return pledged gold or silver within seven working days of loan closure, or compensate borrowers at Rs 5,000 per day for delays  
- Auctions of pledged assets must follow transparent procedures, with reserve prices set at 90 percent of market value  

Future outlook  

The RBI’s new rules aim to standardize gold-backed lending, enhance borrower protection, and reduce systemic risks. While the transition may be challenging for NBFCs, the long-term impact is expected to improve credit discipline and transparency in the sector. Operational agility and service excellence will likely become key differentiators among lenders navigating this regulatory reset.  

Sources: Economic Times, Business Standard, News18, Moneycontrol, S&P Global Ratings.

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