Gold Loan Rules Tightened: RBI to Cap LTV at 75%, Ends COVID-Era Relaxation

The Reserve Bank of India (RBI) has proposed significant changes to gold loan regulations, aiming to bring more discipline and uniformity to the lending process. The central bank plans to limit gold loans to only 75% of the gold's market value, down from the existing 90% allowed during the pandemic period.

🔁 What’s Changing?

RBI is rolling back the loan-to-value (LTV) ratio for gold loans from 90% to 75%. This change applies uniformly to both banks and NBFCs (Non-Banking Financial Companies).

During the COVID-19 pandemic, the RBI temporarily allowed a 90% LTV to help people access funds quickly. Now that economic conditions have normalized, the RBI is reverting to stricter rules to reduce risk and ensure responsible lending.

🔍 Focus on Creditworthiness, Not Just Gold Value

The new rules are aimed at making gold loan approval more stringent. Earlier, lenders often approved loans simply based on the value of the gold pledged. Going forward, borrowers’ creditworthiness and actual need for the loan must also be taken into account.

Key Requirements:

• Evaluate borrower’s repayment capacity

• Justify the actual loan requirement

• Do not rely solely on pledged gold value

📏 Standardized Valuation Framework

RBI has asked financial institutions to adopt a uniform and transparent gold valuation framework, which includes:

• Consistent rules for assessing purity and weight

• Using reference gold prices

• Publishing valuation methods on their official websites

This is meant to avoid discrepancies and ensure fairness across all institutions.

🤝 Uniform Rules for All Lenders

RBI Governor Sanjay Malhotra emphasized that gold loan norms should be standardized across all financial institutions, including banks and NBFCs, while still accounting for their risk tolerance levels.

“Each institution has different risk capabilities, but the rules must ensure a level playing field,” said the RBI Governor.

💡 Why It Matters for Borrowers

This move could make it slightly harder to get large gold-backed loans, especially for borrowers with weaker credit histories. But on the flip side, it reduces over-leveraging and ensures responsible borrowing.

🔚 Bottom Line

The RBI’s proposed changes mark a return to stricter pre-pandemic norms for gold loans. With a 75% LTV cap and a focus on borrower creditworthiness, the new rules aim to strengthen financial discipline and reduce risk in the gold lending market.