How Will RBI's New Guidelines on Gold Loans Impact NBFC Growth?

Mumbai, June 13 (NationPress) The recent elevation of the loan-to-value (LTV) ceiling as per the RBI's final guidelines on gold loans is anticipated to catalyze the growth of non-banking financial companies (NBFCs) that provide these loans, according to a report by Crisil released on Friday.

This advantage will remain despite the modification in LTV calculations for bullet repayment loans, which will now need to incorporate the accrued interest due at maturity in addition to the initially disbursed principal. The enhancement in the LTV ceiling is expected to mitigate this effect, as stated in the report.

The recently issued directions introduce an LTV grid dependent on ticket size, allowing for elevated LTVs for smaller consumption loans. The highest permissible increase in LTV is for loans under Rs 2.5 lakh, which now stands at 85 percent, up from 75 percent previously.

According to Crisil Ratings’ projections, loans below Rs 5 lakh make up nearly 70 percent of the gold loan portfolio for NBFCs.

Crisil Ratings Director Malvika Bhotika commented: "The adjustment in LTV norms for smaller loans is predicted to benefit gold loan-centric NBFCs in multiple ways. Firstly, it will provide a greater buffer to satisfy LTV requirements even when including accrued interest in bullet repayment loans. Secondly, it will create additional lending capacity. For bullet loans, the LTV at disbursement might rise from the current 65-68 percent to 70-75 percent."

“Nevertheless, granting disbursements at higher LTVs could reduce the buffer against gold price fluctuations, necessitating a more rigorous approach to risk management and timely auctions to handle potential losses,” Bhotika added.

The draft recommendations had suggested an additional 1 percent standard asset provisioning for LTV breaches lasting over 30 days. The final guidelines, however, do not mention this additional provisioning. Nonetheless, the lender's credit policy must outline actions for LTV breaches and the triggering events for auctions, among other details.

Another critical guideline is the process for loan renewals and/or top-ups, consistent with earlier draft directions. For bullet repayment loans, extensions or top-ups can only occur after settling the entire accrued interest. Thus, NBFCs should prioritize regular interest collection to sustain their capacity to offer renewal/top-up loans.

These guidelines will take effect from April 1, 2026, granting NBFCs ample time to adjust their systems and processes to align with the updated regulations. Although there may be challenges for certain entities as they adapt their operations, the regulations are expected to benefit the sector and standardize the regulatory framework across all regulated entities, according to the report.

However, the capacity of NBFCs to navigate escalating competition—especially from banks—will be crucial, as these guidelines apply to all regulated entities, the report further noted.