Context:
The Reserve Bank of India (RBI) has issued final guidelines increasing the Loan-to-Value (LTV) ratio for gold loans from 75% to 85% for loans below ₹2.5 lakh. The regulatory move is aimed at enhancing access to small-ticket loans, especially in rural areas, and supporting liquidity in the NBFC and MFI sectors.
Key Highlights:
Impact of LTV Hike on Gold Loans
- Small-ticket loans (below ₹2.5 lakh) are set to rise significantly in share of total gold loan AUM.
- Experts estimate 30–40% of AUM currently comprises larger loans, suggesting a reshuffle towards smaller loans in the coming quarters.
- NBFCs and gold loan providers are expected to expand lending in this segment, improving credit access in rural India.
Boost for NBFC-MFIs
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- RBI has relaxed qualifying asset norms for NBFC-MFIs:
- Minimum qualifying assets (microfinance loans) lowered from 75% to 60%.
- Allows up to 40% of AUM in non-MFI assets, up from 25%.
- The move gives MFIs greater portfolio flexibility, enabling them to diversify into secured products like gold loans and LAP (loan against property).
What is Loan-to-Value (LTV) Ratio?
The Loan-to-Value (LTV) ratio is a crucial metric in lending, particularly for home loans. It represents the percentage of the property’s value that is financed by the loan. A higher LTV ratio means a larger portion of the property is financed, indicating a higher risk for the lender.
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