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Gold loans are a popular financing method in India, allowing individuals to easily access funds by pledging their gold jewellery, coins, etc. as collateral. The Reserve Bank of India (RBI) regulates this sector to ensure borrower protection and financial stability. One of the key regulatory tools is the Loan-to-Value (LTV) ratio, which caps the maximum loan amount that can be sanctioned against the market value of gold. This ratio safeguards lenders from gold price volatility and protects borrowers from over-borrowing.
Recent RBI updates have introduced important changes to the Loan to Value Ratio for Gold Loans, including differentiated limits for small-ticket loans and revised rules for bullet repayment loans. Understanding these guidelines is crucial for borrowers, lenders, and investors to make informed decisions about gold loans and their risks.
The RBI’s framework for gold loans governs the maximum permissible LTV ratio, temporary relaxations, and applicability across financial institutions.
The RBI sets the maximum LTV ratio at 75% of the gold’s market value for standard gold loans. This means borrowers can get a loan amount up to 75% of the appraised value of their pledged gold.
During the COVID-19 pandemic, RBI temporarily raised the LTV ratio to 90% for non-agricultural gold loans to ease liquidity constraints for borrowers facing financial hardship.
From April 1, 2021, the LTV ratio reverted to the standard 75% for all new gold loans, ending the temporary pandemic relief.
These guidelines apply uniformly to commercial banks, NBFCs, cooperative banks, and housing finance companies offering gold loans across India.
The RBI has also recently introduced a higher LTV of 85% for gold loans up to ₹2.5 Lakhs, aimed at small borrowers to improve credit access.
The Loan-to-Value (LTV) ratio in gold loans is the percentage of the loan amount sanctioned relative to the appraised market value of the gold pledged as collateral.
The formula for calculating LTV is as follows:
LTV = (Loan Amount / Appraised Value of Gold) × 100
For example, if your gold is valued at ₹1,00,000 and the LTV is 75%, you can borrow up to ₹75,000.
The valuation is based on the current market price of gold, not the purchase price.
Only the pure gold content is considered; making charges and stones in jewellery are excluded.
The purity of gold (karat) affects the valuation; higher purity gold fetches a higher loan amount.
For bullet repayment loans, the accrued interest is also factored into the LTV calculation, increasing the effective loan amount considered.
If you have 20 grams of 22-carat gold and the current market price is ₹5,000 per gram, the loan per gram at 75% LTV is:
Loan per gram = 22 / 24 × 5,000 × 0.75 = ₹3,435.
Hence, the total loan amount = 20 grams × ₹3,435 = ₹68,700.
The RBI’s temporary increase of the LTV ratio to 90% during the pandemic was a significant relief measure. It was applicable only for non-agricultural gold loans and was a time-bound measure that expired in March 2021. Since then, the RBI has reverted to more conservative LTV limits to balance borrower protection with financial stability.
However, the RBI has introduced a nuanced LTV structure in 2025 to support small-ticket borrowers. The new guidelines allow an LTV of up to 85% for gold loans up to ₹2.5 Lakhs, including interest, which is a significant increase from the earlier uniform 75% cap. For loans between ₹2.5 Lakhs and ₹5 Lakhs, the LTV is capped at 80%, while loans above ₹5 Lakhs remain capped at 75%. This tiered approach aims to improve credit access for low-income and rural borrowers without exposing lenders to excessive risk.
Additionally, the RBI mandates that the LTV calculation must include the total repayment amount (principal plus interest), especially for bullet repayment loans where interest is paid at the end. This ensures that lenders assess the full liability of the borrower, curbing over-lending and potential defaults.
The RBI’s revised guidelines have introduced specific eligibility criteria to avail of the higher LTV ratios, particularly for smaller loans:
Loan Amount Threshold: The increased LTV of 85% applies only to gold loans up to ₹2.5 Lakhs. Loans above this amount have progressively lower LTV caps (80% for ₹2.5–5 Lakhs and 75% for above ₹5 Lakhs).
Simplified Credit Appraisal: For loans up to ₹2.5 Lakhs, lenders are not required to conduct detailed income assessments or credit checks. This relaxation aims to ease access for low-income, rural, and small business borrowers.
End-use Verification: End-use checks are mandatory only if the loan qualifies under Priority Sector Lending (PSL) norms, reducing paperwork for other borrowers.
Loan Tenure Restrictions: For bullet repayment loans, the tenure is capped at 12 months to reduce risk exposure.
Collateral Requirements: The gold pledged must meet purity and valuation standards as per RBI norms to qualify for the higher LTV.
The LTV ratio plays a pivotal role in determining the loan amount, approval process, and terms of gold loans:
Loan Amount Determination: A higher LTV ratio means you can borrow more money against the same value of gold. For example, with an 85% LTV on gold worth ₹1 Lakh, you can get ₹85,000 instead of ₹75,000 previously.
Interest Rate Influence: Loans with higher LTVs generally attract higher interest rates because lenders perceive them as riskier due to reduced collateral margins.
Loan Tenure and Repayment: Higher LTV loans, especially those with bullet repayment structures, often have shorter tenures (12 months maximum) to mitigate lender risk.
Approval Speed and Documentation: For smaller loans with higher LTVs (up to ₹2.5 Lakhs), lenders may offer faster approvals with minimal documentation and no income verification, facilitating easier access for borrowers.
Risk Assessment: Lenders apply stricter risk controls and ongoing monitoring for loans with higher LTV to prevent defaults and ensure timely repayments.
Thus, while a higher LTV ratio increases borrowing capacity, it also affects the cost and conditions of the loan.
Accurate gold valuation is critical for determining the gold loan LTV and the loan amount you can avail:
Purity and Weight: The pledged gold’s purity (karat) and weight are meticulously assessed since only the pure gold content is considered for valuation. Higher purity gold (22K or above) fetches a better loan value.
Market Price Basis: The loan amount is calculated based on the current market price of gold at the time of loan sanction, which fluctuates daily.
Exclusion of Making Charges: Making charges, stones, or other embellishments in jewellery are excluded from valuation, as they do not contribute to the gold’s intrinsic value.
Regular Revaluation: Lenders periodically revalue the gold during the loan tenure to ensure the LTV ratio remains within prescribed limits, especially for bullet repayment loans.
Impact of Valuation on LTV: A higher valuation leads to a higher loan amount for the same LTV, while undervaluation can reduce borrowing capacity.
Borrowers should ensure their gold is hallmarked and accurately appraised to maximise loan benefits
The RBI’s revised Loan-to-Value Ratio guidelines have significant implications for banks and Non-Banking Financial Companies (NBFCs):
Risk Mitigation: The tiered LTV caps help lenders manage credit risk by limiting exposure on high-value loans and ensuring adequate collateral margins.
Portfolio Diversification: Higher LTV for smaller loans encourages lenders to expand their retail gold loan portfolio, promoting financial inclusion.
Operational Adjustments: Banks and NBFCs must update their loan appraisal systems to include accrued interest in LTV calculations and enforce stricter monitoring of bullet repayment loans.
Compliance and Reporting: The RBI mandates continuous LTV monitoring and enhanced disclosures to improve transparency and reduce non-performing assets (NPAs) in the gold loan segment.
Competitive Landscape: The relaxation for small loans may intensify competition among lenders targeting low-income and rural borrowers, driving innovation in product offerings and customer service.
Overall, these guidelines aim to balance growth with prudence in the gold loan market.
While the increased LTV ratio benefits borrowers by offering higher loan amounts, it also introduces several risks:
Reduced Collateral Margin: At maximum LTV, the lender’s margin for safety shrinks, increasing the risk of under-collateralisation if gold prices fall.
Higher Interest Costs: Lenders typically charge higher interest rates on high LTV loans to compensate for increased risk, raising the overall repayment burden on borrowers.
Increased Auction Risk: If borrowers default or gold prices decline sharply, lenders may auction the pledged gold sooner, potentially resulting in loss of collateral.
Financial Stress: Borrowers may over-leverage their gold assets, leading to repayment difficulties and financial strain.
Limited Repayment Flexibility: Bullet repayment loans with high LTV require lump-sum repayment within 12 months, which can be challenging for some borrowers.
Borrowers should carefully assess their repayment capacity and gold price trends before opting for loans at maximum LTV.
Gold price fluctuations have a direct impact on the effective Loan-to-Value ratio during the loan tenure:
Mark-to-Market Revaluation: Lenders periodically revalue the pledged gold to ensure the LTV remains within RBI-prescribed limits, protecting their exposure.
Margin Calls: If gold prices decline, borrowers may be required to pay down part of the loan or provide additional collateral to maintain the LTV ratio.
Triggering Auctions: Significant drops in gold prices can prompt lenders to auction the collateral to recover dues, especially if borrowers fail to meet margin calls.
Risk Management: RBI guidelines require lenders to maintain risk buffers and conduct timely auctions to minimise losses and maintain financial system stability.
Borrower Awareness: Understanding gold price volatility helps borrowers plan loan repayment and avoid forced auctions.
Hence, gold price volatility is a critical factor influencing the safety and cost of gold loans. It makes prudent LTV management essential for both lenders and borrowers.
The loan to value ratio is a fundamental metric in gold lending, serving multiple functions:
Helps borrowers understand the maximum loan they can get against their gold collateral.
Enables lenders to limit exposure and mitigate risks from gold price volatility.
RBI mandates LTV caps to ensure safe and responsible lending practices.
Higher LTV loans generally attract higher interest rates due to increased risk.
Ensures the loan is adequately secured, protecting lender and borrower rights.
Affects loan tenure and repayment terms, balancing borrower convenience and lender security.
RBI’s recent amendments to the LTV ratio guidelines for gold loans have significantly strengthened the lending ecosystem, particularly benefiting banks and NBFCs. The tiered LTV structure with higher limits for small-ticket loans, will help in balancing borrower accessibility with prudent risk management.
This shift not only safeguards lenders against excessive exposure but also opens avenues for portfolio growth in the retail segment. Additionally, the mandatory inclusion of accrued interest in LTV calculations for bullet repayment loans ensures that lenders have a clearer picture of total borrower liability.
The increase of the LTV ratio has stimulated demand, especially among low-income and rural borrowers who rely heavily on gold loans for urgent liquidity.
This higher borrowing capacity makes gold loans more attractive and accessible, encouraging more customers to approach lenders.
The relaxation of credit appraisal norms for small loans has further accelerated loan disbursements, driving a surge in gold loan portfolios.
By easing documentation requirements and allowing higher LTVs for smaller loans, lenders can better serve existing clients who require quick and hassle-free credit.
This flexibility helps in retaining customers who might otherwise turn to informal lenders or unregulated sources.
The amendments also foster trust and loyalty by addressing long-standing borrower concerns, thereby strengthening lender-client relationships in a competitive market.
The revised LTV norms enable lenders to unlock more value from the same gold collateral, enhancing asset utilisation.
With higher permissible loan amounts on smaller tickets, lenders can diversify their loan book and improve yield without significantly increasing risk.
The clear guidelines on valuation, ownership verification, and loan tenure also streamline operations, reducing delays and improving turnaround times.
The amendments contribute to overall financial stability by imposing prudent caps on LTV ratios and enforcing stricter risk controls.
By capping bullet repayment tenures at 12 months and including interest in LTV calculations, the RBI reduces the likelihood of defaults and asset quality deterioration.
These measures ensure that gold loans remain a safe and sustainable credit product, protecting both lenders and borrowers from undue financial stress.
To ensure transparency and fairness in gold loan auctions, RBI has issued clear rules:
Reserve Price: Minimum reserve price for auctioned gold must be at least 85% of the average closing price of 22-carat gold over the last 30 working days.
Adjusted Pricing: Reserve price is adjusted proportionally for gold of lower purity.
Auction Process: Auctions must be conducted by board-approved auctioneers with strict KYC compliance.
Borrower Participation: Borrowers have the right to attend auctions and reclaim gold by repaying dues before sale.
Third-party Agencies: Standardised agencies must be used for sourcing, appraisal, and valuation to minimise fraud.
LTV Monitoring: Continuous monitoring of LTV during loan tenure is mandatory to avoid excessive lending.
Risk Controls: Internal controls and risk weight measures must be applied to maintain financial stability.
The LTV ratio for gold loans is the maximum loan amount a borrower can get against the appraised value of their gold collateral. Currently, RBI allows up to 85% LTV for loans up to ₹2.5 Lakhs and 75% for higher amounts.
The highest LTV fixed by RBI was 90% during the COVID-19 pandemic as a temporary relief measure for non-agricultural gold loans, which has since reverted to 75% or 85% depending on loan size.
A higher LTV ratio generally leads to higher interest rates. This is because lenders perceive greater risk with reduced collateral margins and adjust pricing accordingly to mitigate potential defaults.
LTV is calculated by dividing the loan amount (including accrued interest for bullet loans) by the current market value of the pledged gold, then multiplying by 100 to get a percentage.
The RBI’s new rule mandates that Urban Cooperative Banks (UCBs) must adhere to the revised LTV caps and ensure stricter ownership verification, valuation standards, and risk controls while offering gold loans.
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