In a move aimed at providing relief to small borrowers, the Reserve Bank of India (RBI) has relaxed gold loan norms. The central bank has increased the Loan-to-Value (LTV) ratio for gold loans up to Rs 2.5 lakh from 75% to 85%. This includes the interest component as well.
So, if a borrower pledges gold worth Rs 1 lakh, they can now get a loan of up to Rs 85,000 – Rs 10,000 more than earlier. This is expected to bring easier access to credit for households and small businesses, especially in rural and semi-urban areas where gold loans are a popular source of funds.
This relief is part of the RBI’s broader review of gold loan practices, particularly those offered by non-banking financial companies (NBFCs).
Also read: RBI’s draft norms: Why sub-Rs 2 lakh gold loans call for soft-touch rules
Earlier in April, the central bank had flagged several issues during a joint supervisory review such as excessive LTV breaches, overuse of third-party agents, irregularities in auction processes, and weak risk control mechanisms.
In response, draft guidelines proposed a tighter framework. These included:
-Capping LTV at 75% (interest included)
-Limiting bullet repayment tenure to 12 months
-Stricter internal controls and compliance mechanisms
-Monitoring of end-use of gold loans under the Priority Sector Lending (PSL) category
Also read: Gold loan norms: Finmin wants RBI to exclude small borrowers
However, to simplify things for smaller borrowers, the RBI has now clarified that credit appraisal will not be required for small-ticket gold loans. End-use monitoring will also be limited to PSL loans, which means faster approvals and less paperwork for both lenders and borrowers.