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Informist, Tuesday, May 6, 2025

MUMBAI – The Reserve Bank of India's new draft norms on loans against gold are likely to slow down the growth prospects of non-banking financial companies that extend loans against gold, according to a report by Crisil Ratings. "If implemented in current form, the directions on LTV (loan-to-value) computation and breaches thereof can impact the growth prospects of gold-loan NBFCs as they will have to recalibrate their disbursement values," Malvika Bhotika, director, Crisil Ratings, said in the report.

On Apr. 9, the RBI issued draft norms to regulate lending against gold by banks and non-bank financial companies and invited public comment by May 12. The guidelines propose that the maximum loan-to-value ratio with respect to gold loans will not exceed 75%, which would apply to all gold loans sanctioned by non-bank lenders, irrespective of the purpose for which loans have been sanctioned.

In September 2024, the RBI had highlighted irregular practices amid a significant increase in the loan-against-gold jewellery portfolio of some lenders. It had asked lenders to comprehensively review their policies, processes and practices to identify gaps and initiate remedial measures in a time-bound manner. In FY25, the combined loans against gold jewellery portfolio of banks and NBFCs is estimated to have grown by over 50%; for banks alone, the business more than doubled, growing 104%, Crisil Ratings said in its report.

"For bullet loans, we expect the LTV (loan-to-value) at disbursement to reduce from 65-68% currently to 55-60% to factor in accrued interest and ensure LTV compliance. This will mean lower loan disbursement for the same value of gold jewellery," Bhotika said. "NBFCs may also look at periodic interest collection from their customers to manage LTVs. Alternatively, they may decide to focus on EMI-based (equated monthly instalment) products."

The central bank also said any renewal or top-up of bullet repayment loans may be extended only after the interest accrued is repaid. Earlier, both loan top-up and renewal were being offered as per company policies. "This new rule is likely to create practical challenges at the borrower level and impede the ability of NBFCs to offer loan renewal or top-up in a seamless manner," the rating agency said. 

The maximum loan tenure for bullet repayment loans is capped at 12 months in the new norms draft. This norm is not likely to affect the large NBFCs, but a few will have to stop offering bullet repayment loans with the tenure of more than 12 months.  End

Reported by J. Navya Sruthi

Edited by Ashish Shirke

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