Context:
On April 9, 2025, the Reserve Bank of India (RBI) released draft guidelines on loans against gold collateral.
- Objective: Harmonise gold loan regulations across banks and NBFCs, ensure transparency, and curb irregularities observed in FY24.
Why RBI Intervened
- Alarm over irregular practices and rapid portfolio expansion:
- Gold loan portfolio of banks and NBFCs grew over 50% in FY24.
- Bank gold loan books alone surged 104%, raising regulatory concerns.
- Rising gold prices and growing credit demand in the informal economy further complicated risk monitoring.
Key Provisions in the Draft
- LTV Ratio
- Cap remains at 75%.
- For bullet loans (especially for consumption), interest must be included in LTV, reducing disbursable amount.
- Collateral & Valuation
- Gold to be valued based on 22 carat price.
- Mandatory proof of ownership for pledged gold.
- Uniform standards for gold purity and weight assessment.
- Loan Structuring & Renewals
- No concurrent loans for both consumption and income generation.
- Top-up/renewal allowed only if the existing loan is standard and within LTV.
- Fresh loan only after complete repayment of principal and interest.
- Timely Return of Collateral
- If the lender delays return of gold beyond 7 working days, a ₹5,000/day penalty must be paid to the borrower.
Impact on Regulated Entities
- Reduced borrower flexibility; especially affects rural/agricultural borrowers dependent on gold loans.
- NBFCs face constraints in liquidity due to tougher renewal norms.
- Higher compliance costs from documentation, purity checks, and DSCR norms.
- Smaller NBFCs may face funding issues, leading to industry consolidation.
- Likely interest rate hikes to offset increased operational burden.
Critical Assessment
- Experts suggest the RBI consider differentiated norms:
- Micro gold loans (used by rural poor) vs. high-ticket urban loans.
- Blanket regulations may hurt financial inclusion and informal sector liquidity.
TH
