Key Highlights
- RBI proposes a uniform 75% LTV limit that includes accrued interest for bullet loans.
- Mandatory gold ownership verification, 22‑carat valuation, and prohibition of dual‑purpose lending.
- Top‑up restrictions, ban on re‑pledging, and a ₹5,000/day penalty for delayed gold return are imposed.
- Implementation starts 1 January 2026, with special concessions for low‑value accounts.
- Rural borrowers warn that tighter LTV rules could reduce access to credit for farmers and informal workers.
Detailed Insights
Bank gold portfolios rose 104 % year‑on‑year in FY24, with a combined 50 % surge across banks and NBFCs. Rising gold prices and gaps in rural credit pushed more individuals to pledge gold. RBI aims to standardise procedures, safeguard borrowers, and level the playing field.
New norms enforce ownership proof, include accrued interest in the LTV calculation, standardise 22‑carat valuation, and require uniform purity and weight checks. Dual‑purpose loans and re‑pledging are outlawed. Top‑ups are only allowed when the existing loan is standard and remains within LTV norms; repayment of the full due amount is compulsory before a fresh disbursement. A penalty of ₹5,000 per day applies if a lender delays gold return beyond seven days.
The Finance Ministry announced that implementation will commence on 1 January 2026 and stressed protection for small‑balance gold borrowers. While the guidelines may curb over‑leveraging, critics warn of higher interest rates, increased compliance costs, and potential consolidation in the NBFC sector. Rural borrowers fear a liquidity squeeze, fewer collateral options, and limited transparency.
Key Concepts
- LTV (Loan‑to‑Value): The ratio of the loan amount to the net appraised value, including accrued interest.
- Gold Valuation Method: A standardised approach that values pledged gold at current 22‑carat prices.
- Dual‑Purpose Loan: Credit that serves both consumption and income‑generating purposes.
- Re‑pledging: Using delivered gold as collateral for new borrowing.
- DSCR: Debt Service Coverage Ratio, governing a borrower’s repayment capacity.