In a key announcement during the RBI monetary policy press conference, Governor Sanjay Malhotra stated that the Loan-to-Value (LTV) ratio for gold loans up to ₹2.5 lakh per borrower will be revised to 85% from the existing 75%, including the interest component. Simply put, if you pledge gold worth ₹1 lakh, you can now borrow up to ₹85,000 instead of ₹75,000 earlier.
This move is aimed at enhancing liquidity access for small borrowers, particularly in rural and semi-urban areas where gold loans are a common form of short-term credit.
What is LTV and why does it matter?
The Loan-to-Value ratio refers to the proportion of a loan that can be disbursed against the value of the collateral—in this case, gold. A higher LTV allows borrowers to access a larger amount of funds without needing to pledge more gold. This makes borrowing more accessible and efficient, especially in times of emergency or financial stress.
With the LTV cap now raised to 85%, borrowers will have more flexibility and headroom to meet their credit needs without turning to informal lending sources.
Why did RBI change the rule?
RBI Governor Sanjay Malhotra clarified that the LTV revision is part of a broader push to standardize and streamline gold loan regulations, particularly for small-ticket loans. Key highlights from his remarks include:
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Final guidelines on gold loan regulations will be issued today or latest by Monday.
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The existing draft was not new, but a reiteration of past directions, aiming to resolve non-compliance by some lenders.
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Credit appraisal requirements will be removed for gold loans up to ₹2.5 lakh.
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End-use monitoring will only be required under Priority Sector Lending (PSL) norms.
Market response: Gold loan financiers surge
The announcement triggered sharp gains in shares of key gold loan NBFCs:
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Muthoot Finance Ltd. surged up to 8%
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Manappuram Finance Ltd. rose nearly 5%
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IIFL Finance Ltd. gained around 5%
What does it mean for lenders?
For gold loan financiers, the revised LTV expands their lending potential without needing new customers, as they can now lend more against the same value of gold. This is expected to grow their loan books, improve margins, and enhance customer retention. The removal of credit appraisal for small loans also reduces operational overhead and streamlines disbursal processes, leading to faster turnaround times and better service efficiency.
In short, the regulatory easing is a win-win for both lenders and borrowers—borrowers get more credit access, and lenders unlock greater business potential within existing regulatory boundaries.
In summary:
The RBI’s decision to raise the LTV ratio for small gold loans brings easier, quicker, and higher access to credit for borrowers, while opening up significant growth opportunities for gold loan lenders by enabling larger disbursements, reduced processing time, and expanded loan books.
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