The Reserve Financial institution of India (RBI) on Friday elevated the loan-to-value (LTV) ratio on gold loans as much as Rs 2.5 lakh to 85 per cent per borrower, up from the 75 per cent proposed within the draft norms issued in April this 12 months.
For gold loans greater than Rs 2.5 lakh and as much as Rs 5 lakh, the LTV ratio has been set at 80 per cent. For loans greater than Rs 5 lakh, the central financial institution has set an LTV of 75 per cent.
The RBI stated that the brand new norms will come into impact from April 1, 2026
Earlier within the day, RBI Governor Sanjay Malhotra instructed reporters that the RBI had proposed to extend the LTV ratio to 85 per cent for smaller loans under Rs 2.5 lakh. The LTV ratio can even embody curiosity element, he stated.
LTV ratio is the ratio of the excellent mortgage quantity, together with any accrued and unrealised curiosity, to the worth of the collateral safety on a reference date.
In April this 12 months, the RBI had issued draft tips on gold loans, a phase that has been witnessing an explosive development within the final one 12 months.
“The prescribed LTV ratio shall be maintained on an ongoing foundation all through the tenor of the mortgage,” the RBI stated in a launch.
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It stated {that a} lender might determine on an acceptable strategy for lending in opposition to eligible collateral as a part of its credit score danger administration framework, in keeping with the precept of proportionality and ease of entry for small ticket loans.
“Nevertheless, detailed credit score evaluation, together with evaluation of borrower’s reimbursement capability shall be undertaken in case the full mortgage quantity in opposition to eligible collateral is above Rs 2.5 lakh to a borrower,” the RBI stated.
The comfort in gold mortgage norms comes days after the Division of Monetary Providers (DFS) had written to the Reserve Financial institution of India (RBI) to think about the necessities of small gold mortgage debtors and exclude these borrowing under Rs 2 lakh below the draft gold mortgage norms.
“Draft Instructions on Lending Towards Gold Collateral issued by the @RBI have been examined by @DFS_India below steering of Union Minister for Finance and Company Affairs Smt. @nsitharaman. @DFS_India has given recommendations to the @RBI to make sure that the necessities of the small gold mortgage debtors should not adversely affected,” Finance Ministry stated in a publish on social media platform X (previously Twitter) on Might 30.
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DFS had steered to the RBI that small-ticket debtors under Rs 2 lakh could also be excluded from the necessities of those proposed instructions to make sure well timed and speedy disbursement of loans for such small-ticket debtors.
The RBI stated {that a} lender is not going to grant any advance or mortgage in opposition to major gold or silver or monetary belongings backed by major gold or silver, e.g., models of Trade-traded funds (ETFs) or models of Mutual Funds.
“Gold or silver accepted as collateral shall be valued primarily based on the reference worth similar to its precise purity (caratage),” it stated.
For this goal, the decrease of the common closing worth for gold or silver of that particular purity over the previous 30 days, or the closing worth for gold or silver of that particular purity on the previous day, as revealed both by the India Bullion and Jewellers Affiliation Ltd. (IBJA) or by a commodity change regulated by the Securities and Trade Board of India (SEBI) will likely be used.
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The RBI governor stated that the monitoring of end-use of gold loans will solely be necessitated if a borrower was availing loans below precedence sector lending.
For standardisation of paperwork and communication, the RBI stated that the mortgage settlement will cowl the outline of the eligible collateral taken as safety, worth of such collateral, particulars of public sale process and the circumstances resulting in the public sale of the eligible collateral.
“A lender shall be certain that mandatory infrastructure and services are put in place and applicable safety measures taken in every of its branches the place loans are sanctioned in opposition to gold or silver collateral,” it stated.
The RBI stated {that a} lender will launch or return the pledged eligible collateral held as safety to the borrower/ authorized inheritor on the identical day however in any case, not exceeding a most interval of seven working days upon full reimbursement or settlement of the mortgage.
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It stated that in case of any injury to the pledged eligible collateral by the lender in the course of the tenor of mortgage, the price of restore will likely be borne by the lender.
The pledged gold or silver collateral mendacity with a lender past two years from the date of full reimbursement or settlement of mortgage shall be handled as unclaimed. A lender will periodically undertake particular drives to establish the whereabouts of the borrower/ authorized inheritor in respect of such unclaimed gold and silver collateral, the RBI stated.
The regulator additionally requested lender to chorus from issuance of deceptive commercials containing unrealistic claims to advertise loans in opposition to gold or silver collateral.
“These instructions shall be complied with as expeditiously as doable however no later than April 1, 2026,” the RBI stated.
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As per RBI information, banks and NBFCs reported an outstanding development in gold mortgage excellent to Rs 1.78 lakh crore as of January 2025, a surge of 76.9 per cent on a year-on-year foundation. RBI information exhibits that NPAs in gold loans jumped 28.58 per cent in a 12 months and mortgage excellent grew by 27.26 per cent. NPAs rose by over Rs 1,500 crore to Rs 6,824 crore as of December 2024 as in opposition to Rs 5,307 crore a 12 months in the past. Of this, gold mortgage NPAs of Rs 2,040 crore had been reported by industrial banks as of December 2024 from Rs 1,404 crore a 12 months in the past.