The Reserve Bank of India’s (RBI) proposed guidelines for lending against gold are expected to curb growth among non-banking financial companies (NBFCs) and make it harder for some borrowers to access credit. While the central bank says the draft is aimed at rationalisation and harmonisation, analysts and industry players warn of increased scrutiny and compliance burdens, particularly for NBFCs.
Under the draft Lending Against Gold Collateral Directions, 2025, the RBI proposes a uniform regulatory framework across banks and NBFCs, focusing on collateral management, underwriting standards, and end-use monitoring. The move comes in response to a sharp spike in gold-backed lending—outstanding gold loans surged 87% year-on-year to Rs 1.91 lakh crore in February 2025—amid rising gold prices and stress in other retail loan categories.
A key change in the draft is the treatment of loan-to-value (LTV) ratios. Though the LTV cap remains at 75%, lenders must now include accrued interest while calculating LTV for bullet repayment loans taken for consumption. If the LTV exceeds 75% for over 30 days, lenders must provision 1% of the loan amount—recoverable only once the LTV stays within limits for a month. This provision could particularly hit NBFCs, as the LTV restriction applies to both consumption and income-generating loans for them, unlike banks, where it applies only to the former.
The draft also proposes stricter eligibility and documentation norms. Lenders cannot issue loans against primary gold or gold-backed financial assets like ETFs or mutual funds. Concurrent loans for both consumption and income-generating purposes will be barred. Further, loans against re-pledged gold are prohibited, and lenders must verify and maintain records of gold ownership.
These changes may make credit access more selective. Borrowers without verifiable ownership or with ambiguous end-use plans may be edged out. Bullet repayment loans for consumption will have a maximum tenure of 12 months. Lenders must assess repayment capacity and ensure that renewals or top-ups are granted only if loans remain standard and within LTV limits.
The silver lining
Some measures, however, favour borrowers. For example, lenders will be required to publish gold auction notices in regional and national newspapers—a practice already followed by NBFCs but now proposed as a universal mandate.
While NBFCs argue the draft largely consolidates existing norms they already follow, analysts believe growth in the gold loan segment could be tempered once these rules come into force. The RBI has sought stakeholder feedback before finalising the norms.
