RBI’s gold loan rules may reshape lending

New Delhi

The Reserve Bank of India's new gold loan rules may lead lenders to change their business strategies, according to a report by S&P Global Ratings.

The rules give lenders more freedom to offer shorter-term loans backed by gold. This can help small borrowers get more money from their gold. However, lenders must now include interest due until maturity in the loan-to-value (LTV) calculation. This change could reduce how much money borrowers get upfront, which may not be what most borrowers want.

Another rule now requires lenders to check a borrower’s cash flow before giving loans above $3,000 for personal use or any business-related loans. This will be harder for Non-Banking Financial Companies (NBFCs) like Muthoot Finance and Manappuram Finance, which mostly give gold-backed loans.

NBFCs must now train staff to assess repayment ability, not just the value of the gold used as security. This shift may raise costs at first, but it will improve how loans are given.

The report predicts lenders will offer more three-month and six-month gold loans. This could help low and middle-income borrowers access more funds under the new rules. The RBI has also made it clear that gold loans can only be renewed if interest is fully repaid.

These changes may also lead to more business loans, where LTV rules are less strict. Even with the changes, quick service and strong customer relations will still matter most. NBFCs with skilled staff and strong data tools may stay ahead.

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