RBI eases gold loan norms for small borrowers, hikes LTV cap to 85%

The Reserve Bank of India (RBI) on Friday announced significant relief for small-ticket gold loan borrowers, raising the Loan-to-Value (LTV) ratio from 75 per cent to 85 per cent for loans up to Rs.2.5 lakh, including interest. The revised norms mean a borrower pledging gold worth Rs. 1 lakh can now avail a loan of up to Rs.85,000, as opposed to Rs.75,000 earlier. In addition, credit appraisal requirements will be waived for these small-ticket loans, easing the procedural burden for borrowers and lenders alike.

The central bank’s relaxation applies specifically to smaller gold loans and comes after concerns were raised over the impact of proposed tighter regulations on financially vulnerable borrowers. "The LTV cap for loans below Rs. 2.5 lakh will now be 85 per cent," said RBI Governor Sanjay Malhotra during the press briefing on the Monetary Policy Committee (MPC) outcome. "Final guidelines will be released today or by Monday."

End-use monitoring will also be relaxed and will only be mandated if the loan qualifies under Priority Sector Lending (PSL) guidelines.

The announcement follows the RBI’s April draft framework on gold loan regulations, introduced after a joint supervisory review revealed significant lapses in the sector. These included excessive LTV breaches, use of unregulated third-party agents, non-transparent auction processes, and weak internal controls by non-banking finance companies (NBFCs).

What did the draft guidelines say?

The draft had proposed a uniform LTV cap of 75 per cent, a 12-month tenure limit for bullet repayments, and stringent asset provisioning norms. It also called for tighter credit appraisal, end-use verification, and clearer collateral guidelines. The RBI emphasized that LTV must be maintained continuously and calculated on the total repayable amount, not just the principal.

The proposals sparked concern from NBFCs and government stakeholders over their possible adverse impact on small borrowers. In May, the Department of Financial Services (DFS) under the Ministry of Finance urged the RBI to exempt loans under ₹2 lakh from the new framework and delay implementation to January 2026. The DFS emphasized the need for uninterrupted access to credit for lower-income borrowers.

Friday’s move appears to partially accommodate those concerns. While full guidelines are awaited, the relaxation in LTV and procedural norms for loans under Rs. 2.5 lakh marks a significant deviation from the RBI’s earlier stance.

Jump in stocks of gold loan financiers

As of 1:17 PM, Muthoot Finance shares were up 6.34 per cent at Rs. 2,438.35, after hitting an all-time high of Rs. 2,470.25 earlier in the session. Manappuram Finance rose 3.99 per cent to Rs. 243.75, while IIFL Finance gained 4.77 per cent to trade at Rs. 449.30. In contrast, the BSE Sensex was up 0.79 per cent at 82,083.90.