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Informist, Thursday, Jun. 19, 2025

 

--S&P: Lenders may increase share of products with 3-, 6-month maturity 

--S&P: RBI's new gold loan norms add some regulatory clarity and consistency 

--S&P: RBI's new gold loan norms may lead to adjustments in lending ops 

 

NEW DELHI – The Reserve Bank of India's recent norms on gold lending are likely to lead to business-model adjustments in the gold-backed loan segment, S&P Global Ratings said on Thursday. "India's latest directions on gold loans will change the landscape for its booming lending niche," it said. The rating agency believes lenders nimble enough to adjust their business model stand to gain from the central bank's norms. 

 

The RBI released final directions for lending against gold on Jun. 6 and relaxed norms for small-ticket loans. Under the new norms, the central bank increased the loan-to-value ratio for gold loans worth up to INR 250,000 to 85% from 75%. For gold loans above INR 250,000 but below INR 500,000, the maximum loan-to-value ratio was changed to 80% from 75%.

 

The central bank also said detailed credit assessment should be undertaken if the total loan amount against eligible collateral is above INR 250,000. The directions are to be complied with by Apr. 1, 2026. 

 

The adjustment to credit appraisals will be bigger for non-banking financial companies with dominant gold-based loan books, such as Muthoot Finance Ltd. and Manappuram Finance Ltd., it said. "NBFCs need to develop risk management policies and processes to evaluate borrowers' repayment capabilities based on cash flows. Traditionally, they have relied on collateral valuation," the rating agency said. "Bridging the skill gaps to hire and train loan officers on assessing repayment ability is both an upfront cost and a hurdle to overcome for these lenders."

 

The rating agency believes that the inclusion of interest payments until maturity in the calculation of loan-to-value ratios could effectively limit the upfront loan amount disbursed, something lenders will try to overcome as this goes against typical borrower preference.

 

After the new norms, S&P expects lenders to gradually increase the proportion of shorter tenor products with three-month and six-month maturities. "The shift would benefit low to middle-income borrowers by enabling them to receive larger upfront loan disbursements against their pledged collateral, given the new loan-to-value settings," it said.

 

The central bank's latest rules also provide clarity on renewal of loans, S&P said. According to the new norms, a lender can renew an existing loan or sanction a top-up loan upon a formal request from the borrower, subject to a credit assessment. Such renewal or top-up will be permitted only within the permissible loan-to-value, provided the loan is classified as standard.

 

The rating agency also anticipates increased traction in income-generating loans. "As loan-to-value norms may be less binding, we expect some lender appetite to expand these loans in their portfolio. Income-generating loans would typically be based on regular interest servicing structures," it said. However, it noted that the central bank's regulatory treatment of non-bank lenders' gold loans, which gives zero collateral offset, also alleviates price risk.

 

The rating agency is of the view that the latest directions try to harmonize the regulatory framework by bringing in standardisation across the industry. They also address some prudential and conduct gaps across financial institutions, it said.  End

 

Reported by Pratiksha

Edited by Avishek Dutta

 

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