RBI signals easier gold loan rules for small-ticket borrowers in final guidelines

Mumbai: The Reserve Bank of India (RBI) will ease key provisions in its proposed gold loan framework—raising the loan-to-value (LTV) ratio and exempting small-ticket borrowers from credit appraisals—after feedback from non-banking financial companies (NBFCs), cooperative banks, and government departments, governor Sanjay Malhotra said on Friday.

RBI issued its final rules on loans against gold collateral, detailing easier norms for small ticket loans, later in the day.

Aimed at improving access to formal credit for rural and semi-urban borrowers, the new rules will exempt gold loans up to ₹2.5 lakh from credit appraisals, raise the LTV cap for small-ticket loans to 85% from 75%, and allow borrowers to self-declare gold ownership in the absence of purchase invoices.

The revised guidelines are expected to be released later today or by Monday, Malhotra said in the post policy conference.

Read this | What RBI's proposed norms mean for co-lending, gold loans

The RBI also clarified that end-use monitoring rules would apply only when lenders seek priority sector classification.

“The move to exempt small-ticket gold loans from stringent appraisal requirements addresses a long-standing ask from the sector and will go a long way in enhancing credit accessibility for the common man,” said John Muthoot, chairman and managing director of Muthoot FinCorp Ltd.

The changes come amid concerns that stricter rules under the April 2025 draft would restrict credit flow and drive borrowers back to informal moneylenders. 

Pointing out that some lenders were interpreting the rules on LTV differently, Malhotra said the final framework will clarify that the LTV ratio need to be maintained at 75% throughout the tenure of the loan, including the interest component. So far, some lenders were looking at 75% LTV on the principal amount, taking the total LTV including to up to 88%.

He added that the final rules would incorporate industry feedback and provide more detailed, streamlined guidance. He reiterated that no final framework would be issued without consulting stakeholders and assessing the broader implications.

Since the draft’s release, several lenders, especially cooperative banks and smaller NBFCs, have flagged operational challenges. Key concerns included the valuation of inherited or undocumented gold and the feasibility of stricter appraisals for loans under ₹2 lakh, particularly those classified as agricultural credit.

Read this | NBFCs gain fresh as RBI eases bank lending norms

In an interview last month, Muthoot Finance managing director George Alexander Muthoot said some elements of the draft framework could inadvertently push borrowers back to moneylenders if NBFCs are forced to restrict lending. 

“Customers are getting only 75% of its value. If they had no intention of reclaiming it, they could have sold it and gotten even 99%. By not selling their gold, they’ve benefited from more than 40% rise in its value over the past year,” he had said, adding that Muthoot Finance’s average LTV stands at 62–63%.

Also read | Why the surge in gold loans raises red flags

In response to industry concerns, the Department of Financial Services (DFS) submitted recommendations to the RBI on 30 May. These included deferring implementation of the new norms to 1 January 2026 to allow more time for compliance, and exempting loans below ₹2 lakh from appraisal and end-use requirements to ensure faster disbursal.

India's gold loan market was estimated at ₹7.1 trillion, whereas domestic gold holdings were at ₹126 trillion, as per a PwC report from August 2024.

“The likely uptick in consumption (aided by RBI measures) will boost gold loan business and formal credit demand. Further, RBI’s decision to release the final regulation on gold loans is most welcome as the industry is eagerly waiting for it,” said Umesh Mohanan, executive director and chief executive officer of gold loan platform Indel Money. 

RBI’s decision to hike the LTV for small ticket-loans will be a “major boost” to all players in the gold loan industry, he added.