RBI's breather on gold loans to spur growth in NBFCs: Crisil Ratings

RBI's revised gold loan norms to benefit NBFCs by raising LTV ceilings, providing better cushions for bullet loans and expanding lending headroom

Gold loan-focused non-banking finance companies (NBFCs) are likely to get a major boost following the Reserve Bank of India’s (RBI’s) new framework on gold loans, which has raised the loan-to-value (LTV) ratio ceiling, Crisil Ratings said in a note.

 

The revision in LTV norms for gold loans will provide greater cushion for gold financiers to meet LTV requirements, even after factoring in accrued interest in bullet repayment loans. “The benefit will play out despite the change in LTV computation for bullet repayment loans, which now need to also factor in the accrued interest payable at the time of maturity, rather than just the initial disbursed principal amount. The increase in LTV ceiling will help offset this impact,” the note said.

 

For bullet loans, the LTV at disbursement could increase to 70–75 per cent from around 65–68 per cent, according to Crisil Ratings. The new directions are applicable from 1 April 2026, giving NBFCs the required time to reorient their systems and processes to comply with the revised regulations, it added. 

 

According to Malvika Bhotika, Director, Crisil Ratings, the revision in LTV norms for lower-ticket loans is expected to benefit gold loan-focused NBFCs in two ways. First, it will provide a higher cushion to meet the LTV requirements even after factoring in accrued interest in bullet repayment loans. Second, it will offer additional headroom for lending.

 

“For bullet loans, the LTV at disbursement could increase somewhat from 65–68 per cent currently to 70–75 per cent. That said, disbursement at higher LTVs will mean lower cushion to manage gold price fluctuations and will necessitate a sharper focus on risk management practices and timely auctions to manage ultimate losses,” she said.

 

As per Crisil Ratings’ estimates, loans with a ticket size of less than ₹5 lakh comprise close to 70 per cent of the gold loan portfolio for NBFCs.