Winning Bizness Desk
Mumbai. The Reserve Bank of India (RBI) has revised its gold loan norms, bringing significant relief to small borrowers. The Loan-to-Value (LTV) ratio for gold loans up to ₹2.5 lakh has been increased from 75% to 85%. This means that for gold worth ₹1 lakh, borrowers can now avail loans of up to ₹85,000—earlier it was ₹75,000. The decision is expected to ease access to credit, especially for rural and semi-urban borrowers.
Simpler Process for Small Loans
Loans up to ₹2.5 lakh will now require no credit appraisal, resulting in reduced paperwork and faster disbursal. This move is aimed at supporting individuals with limited financial documentation, making gold loans more accessible and convenient. However, for gold loans between ₹2.5 lakh and ₹5 lakh, the LTV has been capped at 80%, while loans above ₹5 lakh will continue to follow the existing 75% LTV ratio. For such higher-value loans, credit appraisal will still be mandatory.
Stock Market Reaction
Following the RBI's announcement, shares of leading gold loan providers surged in the market. Muthoot Finance’s stock rose by 7%, closing at ₹2,454. Manappuram Finance gained 5.64% to reach ₹247, while IIFL Finance went up by 5.20%, ending at ₹451. The market responded positively as the relaxation in norms is expected to boost business volumes in the gold loan segment.
Move Based on Finance Ministry’s Suggestion
This policy shift comes after the Finance Ministry recommended easing regulations on gold loans up to ₹2 lakh to facilitate faster credit for small borrowers. RBI Governor Sanjay Malhotra said that the new rules would bring more transparency and flexibility in the gold loan sector. The final guidelines are expected to be issued by Monday.
What Borrowers Should Know Before Taking a Gold Loan
While gold loans are quicker and require less paperwork, it is important to evaluate interest rates, LTV ratios, processing fees, and repayment conditions. Equally crucial is the safety of the pledged gold. Hence, borrowers are advised to opt for reputed lenders who offer insured vaults and secure storage. Gold loans are secured loans, which typically means lower interest rates and faster processing.
Loan Tenure, Documentation and Repayment Terms
Loan tenure usually ranges between three months and three years, depending on the bank or NBFC. For example, SBI offers gold loans up to ₹50 lakh, while some NBFCs provide even small ticket-size loans like ₹1,500. Required documents typically include PAN card, Aadhaar, address proof, and passport-sized photographs. Since it’s a secured loan, credit score does not significantly affect eligibility. Repayment options include EMIs, bullet payments, or paying interest monthly and the principal later. Failure to repay may lead to the lender selling the pledged gold.
Story in 7 Key Points:
- RBI raises LTV ratio for gold loans up to ₹2.5 lakh from 75% to 85%.
- Borrowers can now get up to ₹85,000 loan against ₹1 lakh gold value.
- Loans under ₹2.5 lakh won’t require credit appraisal, easing paperwork.
- Loans between ₹2.5–₹5 lakh capped at 80% LTV; above ₹5 lakh stays at 75%.
- Shares of gold loan firms like Muthoot and Manappuram jumped up to 7%.
- Finance Ministry pushed for relaxed norms to help small borrowers.
- Gold loan repayment can be done via EMIs or bullet payments; default may lead to gold auction.
