New RBI Rules on Gold Loans to Transform Business Model
Ratings agency S&P Global Ratings has stated that the Reserve Bank of India’s (RBI) newly announced regulations on gold loans will significantly alter the business model in this sector. The changes are expected to sharpen the distinction between companies that excel in service quality and those that lag behind.
Earlier this month, the RBI released new rules revising the Loan-to-Value (LTV) ratios for gold loans. Under the updated guidelines, loans up to ₹2.5 lakh will now have an LTV ratio of 85%, up from the previous 75%. Loans between ₹2.5 lakh and ₹5 lakh will have an LTV of 80%, while loans exceeding ₹5 lakh will continue with a 75% LTV cap.
The LTV ratio indicates the proportion of the gold’s market value that can be lent to a borrower. These new provisions will come into effect on April 1, 2026.
S&P Global Ratings credit analyst Geeta Chugh commented that non-banking financial companies (NBFCs) relying heavily on high-margin, short-term gold loans are likely to face increased operational costs and competitive pressures under the new framework.
According to Chugh, lending institutions will be required to develop stronger risk management policies and procedures to assess borrowers’ repayment capacity more effectively. She also noted that companies will need to train loan officers to move beyond traditional collateral-based assessments and conduct more comprehensive credit evaluations.
Key points highlighted in the RBI’s new rules:
- Companies must adopt formal risk management policies.
- Revised LTV ratios will take effect from April 2026.
- Borrower assessment processes must move away from purely collateral-based evaluations.
Experts believe the reforms will improve transparency and strengthen borrower protections, although they may increase compliance costs for lenders in the near term.
