Tighter gold loan norms for lenders, 75% value cap

MUMBAI: RBI has moved to tighten oversight of gold-backed lending. In draft guidelines released on April 3, the central bank proposed a uniform cap on the loan-to-value (LTV) ratio for gold loans, limiting it to 75% of the collateral's worth. For NBFCs, this ceiling will apply uniformly, regardless of whether the loan is for consumption or other purposes. During Covid, RBI had relaxed norms and allowed up to 90% loan-to-value ratio for a year.

RBI also called for greater internal accountability among lenders. Banks and NBFCs will be required to set their own LTV limits based on internal risk assessments. A standardised framework for valuing gold collateral is to be introduced, with lenders required to disclose the reference price and adopt a uniform method for assessing purity, as well as calculating gross and net weights. This valuation process must be applied consistently across branches and disclosed on the lender's website.

"With a view to harmonising such regulations across regulated entities while keeping in view their risk-taking capabilities, and also to address a few concerns that have been observed, it has been decided to issue comprehensive regulations, on prudential norms and conduct related aspects, for such loans," RBI governor Sanjay Malhotra said. The proposals, part of RBI's developmental and regulatory agenda, will be finalised after public consultation.

RBI also proposed stricter rules for classifying gold-backed loans. Lending decisions must prioritise the borrower's creditworthiness and cash flow needs, rather than simply the value of the pledged gold. Loans intended for productive purposes should be classified by their end-use, not by the nature of the collateral.