New RBI norms and rising prices could pose risk to gold financiers, says India Ratings

Thu Nov 20 2025

The new and clear gold loan guidelines introduced by the Reserve Bank of India (RBI) and rising gold prices could pose risk to gold financiers, especially if there is increased gold price volatility, putting recent originations at high risk, said India Ratings and Research in a note on Thursday.

The new RBI regulations, and the classification of gold loans into consumption loans (CLs) and income generating loans (IGLs), the rating agency said, have provided lenders with the flexibility in calculating loan-to-value (LTV) ratio.

“In the case of non-bullet loans, participants have been interpreting the regulation to design products, such that while giving an LTV of 85 per cent, interest accrued is not included in the LTV calculation. This reduces the margin of safety of the product. Additionally, offering non-bullet CLs or structuring products such that accrued interest clears one month before maturity poses a risk of higher LTV when factoring in accrued interest, especially during heightened gold price volatility,” says Karan Gupta, Director & Head Financial Institutions, India Ratings.

“Also, lenders price gold based on the lower of the 30-day (India Bullion and Jewellers Association) IBJA price average or the current price, which could reduce risk by 4-5 per cent. Moreover, considering reduced gold weight for impurities can provide a margin of safety,” he said.

Recent originations must be monitored in real-time for LTV, the rating agency said, factoring in accrued interest. Any build-up of risk should be swiftly corrected with auctions. IGLs, assessed for amounts above ₹0.25 million, carries significant risk and many gold loan NBFC have shifted to IGLs, a trend observed with rising gold prices.

Higher volatility

While AUM increases, tonnage growth lags, indicating larger-ticket loans sizes and a shift towards IGL with LTV over 85 per cent. A significant portion of loan books is classified as IGL due to a 100 per cent gold price rise in the past 24 months, allowing borrowers to access higher LTVs as per the regulatory norms.

“This exposes gold lenders to a heightened gold price volatility risk, which could increase auctions and losses if volatility is sharp. Historically, gold prices have been volatile by 15-20 per cent, with LTV norms capped at 75 per cent. In the current scenario, it will be interesting to monitor lender portfolios if similar volatility occurs with higher LTV levels under the new regulations,” the rating agency said.

Accordingly, lenders must tighten their policy framework for IGLs and cap LTVs within a reasonable threshold, considering the linear rise in gold prices. Also, CLs should be calibrated, and regulation followed in true spirit, especially regarding accrued interest in LTV calculations for both bullet or non-bullet payment loans.

Source: https://www.thehindubusinessline.com/