RBI hikes LTV ratio to 85% for gold loans under Rs 2.5 lakh, eases rules for small borrowers
The central bank has increased the Loan-to-Value (LTV) ratio from 75% to 85% for gold loans of up to Rs 2.5 lakh per borrower, including interest.
- Jun 6, 2025,
- Updated Jun 6, 2025 4:05 PM IST
The Reserve Bank of India (RBI) on Friday, June 6, announced key changes to gold loan rules, providing relief to small-ticket borrowers. The central bank has increased the Loan-to-Value (LTV) ratio from 75% to 85% for gold loans of up to Rs 2.5 lakh per borrower, including interest.
In simple terms, if the pledged gold is worth Rs 1 lakh, borrowers can now get up to Rs 85,000 instead of the earlier Rs 75,000.
This move aims to improve access to credit for households and small businesses by easing liquidity constraints.
RBI Governor Sanjay Malhotra also declared that credit appraisal norms will not apply to these smaller gold loans, reducing documentation burdens on borrowers.
Additionally, end-use checks will be needed only if the loan falls under the Priority Sector Lending (PSL) framework.
"There was nothing new in the draft norms on gold loans. We have consolidated all other norms. We have seen that some regulated entities were not following the norms because there was no clarity hence we have consolidated it. We will today or Monday morning release the final guidelines,” the Governor said.
The updated guidelines follow RBI’s April draft on gold lending, issued after a joint supervisory review highlighted serious concerns with NBFC practices.
These included frequent LTV violations, use of unregulated third-party agents, opaque auction processes, and inadequate risk safeguards.
In response, RBI proposed stricter limits like capping LTV at 75%, a 12-month tenure for bullet payments, and tighter portfolio risk norms.
Following pushback, the RBI has now softened its stance, offering relief to small borrowers through these revised norms.
Concerns were brought up regarding the possible effects of these regulations on small borrowers. Last week, the Ministry of Finance suggested modifications to the RBI's draft directions regarding lending against gold collateral, with a particular focus on postponing the implementation. The Department of Financial Services (DFS) recommended that gold loans under Rs 2 lakh should be exempt from the proposed regulatory requirements to ensure prompt and efficient disbursement of loans for smaller borrowers.
It seems that the RBI has taken steps to address these concerns in their recent announcement on Friday.
Gold loan stocks experienced a significant increase in value, ranging from 2% to 7%, following the Reserve Bank of India's decision to raise the Loan-to-Value (LTV) ratio limit for gold loans below Rs 2.5 lakh. The new limit, which has been raised from 75% to 85% as part of the latest norms, has had a positive impact on shares of Muthoot Finance, Manappuram Finance, and IIFL Finance, which saw increases of up to 7%, 5%, and 5%, respectively.
The Reserve Bank of India (RBI) on Friday, June 6, announced key changes to gold loan rules, providing relief to small-ticket borrowers. The central bank has increased the Loan-to-Value (LTV) ratio from 75% to 85% for gold loans of up to Rs 2.5 lakh per borrower, including interest.
In simple terms, if the pledged gold is worth Rs 1 lakh, borrowers can now get up to Rs 85,000 instead of the earlier Rs 75,000.
This move aims to improve access to credit for households and small businesses by easing liquidity constraints.
RBI Governor Sanjay Malhotra also declared that credit appraisal norms will not apply to these smaller gold loans, reducing documentation burdens on borrowers.
Additionally, end-use checks will be needed only if the loan falls under the Priority Sector Lending (PSL) framework.
"There was nothing new in the draft norms on gold loans. We have consolidated all other norms. We have seen that some regulated entities were not following the norms because there was no clarity hence we have consolidated it. We will today or Monday morning release the final guidelines,” the Governor said.
The updated guidelines follow RBI’s April draft on gold lending, issued after a joint supervisory review highlighted serious concerns with NBFC practices.
These included frequent LTV violations, use of unregulated third-party agents, opaque auction processes, and inadequate risk safeguards.
In response, RBI proposed stricter limits like capping LTV at 75%, a 12-month tenure for bullet payments, and tighter portfolio risk norms.
Following pushback, the RBI has now softened its stance, offering relief to small borrowers through these revised norms.
Concerns were brought up regarding the possible effects of these regulations on small borrowers. Last week, the Ministry of Finance suggested modifications to the RBI's draft directions regarding lending against gold collateral, with a particular focus on postponing the implementation. The Department of Financial Services (DFS) recommended that gold loans under Rs 2 lakh should be exempt from the proposed regulatory requirements to ensure prompt and efficient disbursement of loans for smaller borrowers.
It seems that the RBI has taken steps to address these concerns in their recent announcement on Friday.
Gold loan stocks experienced a significant increase in value, ranging from 2% to 7%, following the Reserve Bank of India's decision to raise the Loan-to-Value (LTV) ratio limit for gold loans below Rs 2.5 lakh. The new limit, which has been raised from 75% to 85% as part of the latest norms, has had a positive impact on shares of Muthoot Finance, Manappuram Finance, and IIFL Finance, which saw increases of up to 7%, 5%, and 5%, respectively.