Mumbai
According to a recent Crisil report, the Reserve Bank of India’s (RBI) revised gold loan guidelines—especially the higher loan-to-value (LTV) limits—are expected to support the growth of non-banking financial companies (NBFCs). The new rules, while changing how LTV is calculated for bullet repayment loans by including accrued interest, also increase the LTV ceiling, particularly for small-ticket loans under ₹2.5 lakh. The new cap is 85%, up from 75%, which will benefit nearly 70% of NBFCs' gold loan portfolio, based on Crisil’s estimates.
Malvika Bhotika, Director at Crisil Ratings, noted that this will give NBFCs more flexibility in lending and a better buffer to meet LTV norms, though it also requires careful risk management due to less room for gold price fluctuations. The final directions exclude the proposed 1% additional provisioning for continuous LTV breaches but do require lenders to clearly define their response to such breaches, including auction triggers.
Also, NBFCs must collect interest periodically for bullet loans, as renewals or top-ups will only be allowed after full interest repayment. These guidelines will take effect from April 1, 2026, giving NBFCs time to adjust. While some operational challenges may arise, the move aims to harmonise rules across regulated entities.
Crisil concludes that the real challenge will be how well NBFCs compete with banks, which also fall under these new rules, as the gold loan market continues to evolve.
BOX
India’s microfinance (MFI) sector is showing early signs of recovery, thanks to improved portfolio quality in Q4 FY25 and April 2025, as per a Macquarie report citing CRIF Highmark data. Leading MFIs have written off bad loans and adopted better lending practices, which may lower delinquencies and credit costs in FY26. MFIN’s tighter lending rules have also helped improve loan discipline. However, stress is rising in auto and business loans. While Tamil Nadu and Karnataka show rising defaults, Bihar’s MFI book remains strong. NBFCs continue to lead with the best portfolio quality.