RBI’s LTV Norm Revision to Boost NBFC Gold Loan Growth: Crisil

The Reserve Bank of India (RBI) has issued final directions allowing higher loan-to-value (LTV) ratios for gold loans, a move that is expected to benefit non-banking financial companies (NBFCs) that dominate this lending segment. According to Crisil Ratings, this breather in LTV ceilings—especially for smaller ticket loans—will provide NBFCs with more flexibility and growth opportunities, while also necessitating improved risk management to guard against potential volatility in gold prices.

Why in News?

On June 13, 2025, Crisil Ratings published an analysis of the RBI’s updated final directions on gold loan norms, which include a revised LTV grid allowing up to 85% LTV for loans up to ₹2.5 lakh. These changes are set to become effective from April 1, 2026. The development is relevant as gold loans remain a popular secured lending option in India, particularly among low- to middle-income households, and NBFCs account for a substantial share of the portfolio.

RBI’s Key Revisions in Final Directions

• RBI raised the LTV ceiling for low-ticket gold loans, with the highest LTV at 85% for loans up to ₹2.5 lakh (earlier 75%).
• Introduced a tiered LTV grid based on loan ticket size.
• Revised the LTV calculation methodology for bullet repayment loans:
• Now includes accrued interest along with the principal, not just disbursed amount.

Crisil Ratings’ Take

• The LTV relaxation is positive for gold-loan-focused NBFCs, especially those catering to low-income borrowers.
• Around 70% of NBFCs’ gold loan books consist of loans below ₹5 lakh.

Two major benefits highlighted,

• Compliance cushion: Higher initial LTV gives room to meet norms despite accrued interest in bullet loans.
• Lending headroom: LTVs for bullet loans could rise from 65-68% to 70-75%.

Cautionary Note

• Higher LTVs reduce the margin of safety if gold prices fluctuate downward.

NBFCs will need to,

• Enhance risk management frameworks.
• Execute timely auctions to minimize losses.

Implementation Timeline

• The new norms will be applicable from April 1, 2026.
• NBFCs have sufficient lead time to adjust systems, processes, and compliance structures.

Overall Sector Impact

While there may be initial operational realignments, Crisil Ratings believes the move will support,

• Credit growth
• Financial inclusion
• NBFC profitability