The Reserve Bank of India (RBI) on Friday increased the loan-to-value (LTV) ratio on gold loans up to Rs 2.5 lakh to 85 per cent per borrower, up from the 75 per cent proposed in the draft norms issued in April this year.
For gold loans more than Rs 2.5 lakh and up to Rs 5 lakh, the LTV ratio has been set at 80 per cent. For loans more than Rs 5 lakh, the central bank has set an LTV of 75 per cent.
The RBI said that the new norms will come into effect from April 1, 2026
Earlier in the day, RBI Governor Sanjay Malhotra told reporters that the RBI had proposed to increase the LTV ratio to 85 per cent for smaller loans below Rs 2.5 lakh. The LTV ratio will also include interest component, he said.
LTV ratio is the ratio of the outstanding loan amount, including any accrued and unrealised interest, to the value of the collateral security on a reference date.
In April this year, the RBI had issued draft guidelines on gold loans, a segment that has been witnessing an explosive growth in the last one year.
“The prescribed LTV ratio shall be maintained on an ongoing basis throughout the tenor of the loan,” the RBI said in a release.
It said that a lender may decide on a suitable approach for lending against eligible collateral as part of its credit risk management framework, consistent with the principle of proportionality and ease of access for small ticket loans.
“However, detailed credit assessment, including assessment of borrower’s repayment capacity shall be undertaken in case the total loan amount against eligible collateral is above Rs 2.5 lakh to a borrower,” the RBI said.
The relaxation in gold loan norms comes days after the Department of Financial Services (DFS) had written to the Reserve Bank of India (RBI) to consider the requirements of small gold loan borrowers and exclude those borrowing below Rs 2 lakh under the draft gold loan norms.
“Draft Directions on Lending Against Gold Collateral issued by the @RBI have been examined by @DFS_India under guidance of Union Minister for Finance and Corporate Affairs Smt. @nsitharaman. @DFS_India has given suggestions to the @RBI to ensure that the requirements of the small gold loan borrowers are not adversely affected,” Finance Ministry said in a post on social media platform X (formerly Twitter) on May 30.
DFS had suggested to the RBI that small-ticket borrowers below Rs 2 lakh may be excluded from the requirements of these proposed directions to ensure timely and speedy disbursement of loans for such small-ticket borrowers.
The RBI said that a lender will not grant any advance or loan against primary gold or silver or financial assets backed by primary gold or silver, e.g., units of Exchange-traded funds (ETFs) or units of Mutual Funds.
“Gold or silver accepted as collateral shall be valued based on the reference price corresponding to its actual purity (caratage),” it said.
For this purpose, the lower of the average closing price for gold or silver of that specific purity over the preceding 30 days, or the closing price for gold or silver of that specific purity on the preceding day, as published either by the India Bullion and Jewellers Association Ltd. (IBJA) or by a commodity exchange regulated by the Securities and Exchange Board of India (SEBI) will be used.
The RBI governor said that the monitoring of end-use of gold loans will only be necessitated if a borrower was availing loans under priority sector lending.
For standardisation of documents and communication, the RBI said that the loan agreement will cover the description of the eligible collateral taken as security, value of such collateral, details of auction procedure and the circumstances leading to the auction of the eligible collateral.
“A lender shall ensure that necessary infrastructure and facilities are put in place and appropriate security measures taken in each of its branches where loans are sanctioned against gold or silver collateral,” it said.
The RBI said that a lender will release or return the pledged eligible collateral held as security to the borrower/ legal heir on the same day but in any case, not exceeding a maximum period of seven working days upon full repayment or settlement of the loan.
It said that in case of any damage to the pledged eligible collateral by the lender during the tenor of loan, the cost of repair will be borne by the lender.
The pledged gold or silver collateral lying with a lender beyond two years from the date of full repayment or settlement of loan shall be treated as unclaimed. A lender will periodically undertake special drives to ascertain the whereabouts of the borrower/ legal heir in respect of such unclaimed gold and silver collateral, the RBI said.
The regulator also asked lender to refrain from issuance of misleading advertisements containing unrealistic claims to promote loans against gold or silver collateral.
“These directions shall be complied with as expeditiously as possible but no later than April 1, 2026,” the RBI said.
As per RBI data, banks and NBFCs reported a phenomenal growth in gold loan outstanding to Rs 1.78 lakh crore as of January 2025, a surge of 76.9 per cent on a year-on-year basis. RBI data shows that NPAs in gold loans jumped 28.58 per cent in a year and loan outstanding grew by 27.26 per cent. NPAs rose by over Rs 1,500 crore to Rs 6,824 crore as of December 2024 as against Rs 5,307 crore a year ago. Of this, gold loan NPAs of Rs 2,040 crore were reported by commercial banks as of December 2024 from Rs 1,404 crore a year ago.
