MUMBAI: In a move aimed at improving access to credit for small borrowers, especially in rural and semi-urban areas, the Reserve Bank of India has raised the loan-to-value (LTV) cap for gold loans to 85 per cent from 75 per cent, applicable on loans of up to Rs2.5 lakh.
The central bank has also exempted lenders from conducting credit appraisals for such small-ticket loans, thereby simplifying documentation and speeding up disbursals.
The move is expected to benefit borrowers who depend on pledging household gold for short-term needs and working capital, particularly in regions underserved by traditional banking services.
Gold loans have long served as a convenient credit option for low-income and self-employed segments.
Banks and non-banking finance companies (NBFCs) active in the gold loan space have welcomed the announcement raising LTV cap. Shares of leading gold-loan NBFCs such as Muthoot Finance and Manappuram Finance rallied up to 7 per cent following the policy announcement, signalling market optimism about the growth potential unlocked by the RBI’s move.
Lenders believe that the relaxation will not only aid credit penetration but also boost operational efficiency. By waiving credit appraisal requirements for loans below Rs2.5 lakh, institutions can lower onboarding costs and offer quicker turnaround times.
Final guidelines
Industry insiders also noted that the announcement marks a course correction from the RBI’s draft guidelines in April, which had proposed tighter norms and risk weightings for gold loans.
The final version appears to be more balanced, taking into account feedback from stakeholders, including banks, NBFCs and financial inclusion experts.
The RBI is expected to issue detailed guidelines on the operational aspects of the changes by June 9. These are likely to cover risk management, valuation, documentation and reporting norms to ensure responsible lending practices are upheld even as compliance burdens are eased.
The move could pave the way for broader participation from small finance banks, cooperative banks, and rural NBFCs, and is seen as part of the RBI’s larger push to make credit more inclusive and responsive to ground realities.
