Crisil: RBI’s Gold Loan Norms Positive For NBFCs Despite Tighter LTV Rules

Crisil Ratings said the Reserve Bank of India's recent guidelines on gold loans will support growth in non-banking finance companies offering such products, despite changes in how loan-to-value (LTV) is calculated for bullet repayment loans.

Under the revised norms, NBFCs must factor in accrued interest at maturity when computing the LTV, rather than just the disbursed principal. However, an increase in the LTV ceilings will help mitigate this impact, the agency said.

“The revision in loan-to-value norms for lower-ticket loans is expected to benefit gold loan-focussed NBFCs in two ways,” said Malvika Bhotika, director at Crisil Ratings. “First, it provides a higher cushion to meet LTV limits after accounting for accrued interest. Second, it creates additional lending headroom.”

For bullet repayment loans, the LTV at disbursement could now rise to 70–75% from the earlier 65–68%, Bhotika said. But lending at higher LTVs reduces the cushion to manage gold price volatility, so NBFCs will need to strengthen risk controls and execute timely auctions to limit losses.

As per the RBI’s June. 6 circular, gold loans up to ₹250,000 can have an LTV of up to 85%. For loans between ₹250,000 and ₹500,000, the cap is 80%, while those above ₹500,000 will have a 75% limit. Crisil said nearly 70% of NBFCs’ gold loan portfolios consist of loans below ₹500,000.

The RBI also capped the tenure of bullet repayment consumption loans at 12 months, set weight-based limits for ornaments used as collateral, and introduced strict rules for renewals and top-ups. NBFCs must collect all accrued interest before issuing any such extensions, making regular interest recovery critical to future disbursements.

These changes will take effect from April 1, giving NBFCs time to adjust systems. While initial operational challenges are likely, Crisil expects long-term benefits and a more consistent regulatory framework. However, NBFCs will have to manage rising competition from banks, as the rules apply uniformly across all regulated entities.