Key Highlights
- RBI has lifted the LTV cap, permitting a maximum of 85 % for gold loans up to ₹2.5 lakh.
- The new LTV grid is tiered, granting higher ratios to smaller‑ticket loans.
- For bullet repayment gold loans, accrued interest is now factored into the LTV calculation, tightening risk assessment.
- NBFCs will enjoy more lending headroom, yet must enhance risk‑management practices to guard against gold‑price volatility.
Detailed Insights
On 13 June 2025, Crisil Ratings highlighted the RBI’s final directives, which introduce a progressive LTV framework with 85 % support for loans up to ₹2.5 lakh, effective from 1 April 2026. This adjustment directly benefits the 70 % of NBFCs whose gold‑loan portfolios are concentrated below ₹5 lakh, providing easier compliance and greater credit expansion.
The revised LTV formula for bullet‑type loans now includes accumulated interest alongside principal, a measure that better reflects the borrower’s true exposure. Consequently, the permissible LTV for these loans could shift from the 65–68 % range to 70–75 %, creating new lending space but requiring tighter monitoring of gold‑price movements.
While this regulatory relaxation is expected to spur credit growth and reinforce financial inclusion, NBFCs need to strengthen their risk frameworks, conduct timely auctions, and monitor market dynamics to avert potential losses.
Key Concepts
- Loan‑to‑Value (LTV): The ratio of a loan amount to the market value of collateral, expressing leverage risk.
- Gold‑Backed Loan: A secured credit where gold jewellery serves as collateral.
- Bullet Repayment: Loan structure where the principal is paid in a single installment, often at maturity.
- NBFC: Non‑Banking Financial Company, a financial institution that does not hold a banking license but offers credit facilities.
- Risk Management: Systems and processes designed to identify, assess, and mitigate potential adverse events in lending.