The Reserve Bank of India (RBI) has suggested new regulations to tighten gold loan operations and promote transparency. The draft guidelines, which are aimed at banks and NBFCs, aim to curb misuse and reduce credit risk.

This article is based on information from credible reports published by Rediff, The Economic Times, The Times of India, Deccan Chronicle, Business Line, Money Control, and the RBI's official website.

As gold prices have increased and demand for fast credit expands, gold loans have surged, especially through non-banking financial corporations (NBFCs). Now, the RBI is looking to have similar standards across lenders.

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Some of the proposed conditions include a stricter loan-to-value (LTV) ratio from 90% (which was temporarily increased during the pandemic) to 75%, bullet loan renewals, and increased verification of gold collateral. These changes could limit how much borrowers can raise against their gold and reshape how lenders operate in this segment.

Think of it like this:

Priya, a boutique owner in Coimbatore, wanted to restock for the wedding season, and for that, she needed ₹10 lakh. She mortgaged 150 grams of gold, which is approximately ₹13.33 lakh.

Scenario	LTV	Eligible Loan
Previous norms	90%	₹12,00,000
Proposed RBI cap	75%	₹10,00,000
Difference	-	₹2,00,000 less

That missing ₹2,00,000 could mean fewer items in her shop or lost sales. Under the new rules, borrowers like Priya will have to adjust to lower loan amounts, even if the gold they pledge is worth the same.

Comparative Growth within Loan Segments

Gold loans have experienced the maximum growth among retail loan categories. As of December 2024, gold loans increased by a whopping 71.3% YoY.

Other loan segments posted the following growth rates:

Loan Segment	Growth Rate (YoY)	Source
Gold Loans	71.3%	Business Standard
Credit Card Loans	15.6%	Business Standard
Personal Loans	9.7%	The Times of India
Housing Loans	11.1%
Consumer Durables	-1.1%

Gold loans are currently leading the pack, while other loan segments are growing at a slower pace or even declining.

RBI Proposes Stricter Gold Loan Rules

The Reserve Bank of India issued a draft framework on April 9, 2025, to strengthen the regulation of gold loans. The proposal is intended for banks and NBFCs and aims to standardise practices, improve risk management, and discourage the misuse of gold-backed loans.

Provision	What It Means
Loan-to-Value (LTV) Cap	Has to be maintained at or below 75% for the whole loan tenure. Defaulting after 30 days calls for higher provisioning.
Bullet Loan Renewals	No renewals or top-ups unless all pending interest is repaid, curbing interest rollovers.
Collateral Management	Gold must be pledged only once, and ownership should be confirmed. Assets that are repledged or whose status is not clear should not be allowed.
End-Use Monitoring	Lenders must record how the loan is used, particularly for large-ticket loans, to prevent fund diversion.

Draft RBI Guidelines: Effect on Borrowers and NBFCs

The Reserve Bank of India (RBI) came out with new draft guidelines to govern gold loans, which is a big business for lending for Non-Banking Financial Companies (NBFCs).

The RBI drafted guidelines to govern gold loans as an attempt to tighten the standards of gold-backed lending, and the effect will be seen by both lenders and borrowers.

Impact on Borrowers:

Lower Loan Amounts: According to the new guidelines, the LTV ratio has been restricted to 75%, and as a result, borrowers will now be able to avail themselves of a lesser loan against their gold compared to the previous practice.

Stricter Loan Renewals: Borrowers who rely on gold loan renewals can get into trouble getting their loans renewed. Borrowers now have to pay all the interest before getting a loan renewal.

Limited Use of Collateral: The new rule also disallows using the same gold as collateral for multiple loans. This may limit borrowers who previously used their gold as collateral for different loans over the years.

Effect on NBFCs

Reduced Loan Disbursals: The new rule capping the Loan-to-Value (LTV) ratio at 75% can lead to a decrease in the credit that NBFCs can offer.

Operating Cost: More documentation and verification related to ownership of gold will be required from the NBFCs; hence, more expenses will be incurred for processing and managing gold loans.

Also Read - Gold Loan Repayment Traps 2025: Don't Lose Your Gold

What's Next: Developing The Gold Loan Market in The Long Term

Though the new RBI regulations on gold loans might restrict the growth momentum of the NBFCs in the short term, experts are certain that, in the long run, the sector's benefit will be reaped from these changes.

Long-Term Benefits:

Benefit	Why It Matters
Improved Transparency	Standardised gold valuation and documentation will make the process clearer for everyone involved.
Reduced Default Rates	With tighter LTV ratios and greater monitoring, defaults will be less likely to occur.
Safer Lending Ecosystem	By preventing the repledging of gold and ensuring clear ownership, the sector becomes less prone to fraud.
Sustainable Growth	Moving towards EMI-based loans will lead to steadier and more consistent growth in the market.

Malvika Bhotika, Director at CRISIL Ratings, said:

"If implemented as they are, the new rules on LTV ratios could affect the growth of gold loan NBFCs. They’ll need to adjust their disbursement values, especially for bullet loans. We expect the LTV at disbursement to drop from the current 65-68% to 55-60%, considering accrued interest. This will result in lower loan disbursements for the same value of gold."

Conclusion

The Reserve Bank of India's new draft norms on gold loans can revolutionise gold-backed loans in India. By reducing the maximum amount of the loan to 75% of the value of gold, ending easy bullet loan renewals, and introducing tight checks on pledged gold, the objective is to make gold loans safer and more transparent.

Short term:

The borrowers will likely end up with smaller sizes of loans, and lenders, including NBFCs, might have increased costs and reduced tenure of loans, thereby affecting growth.

But long-term:

They can reduce abuse, improve the confidence of the system, and stabilise lending. Once the lenders adjust to the new regime, the gold loan market might stabilise and/or possess enhanced growth potential.

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