RBI Introduces Stricter Gold Loan Norms

In a significant move to enhance oversight of gold-backed lending, the Reserve Bank of India (RBI) has proposed a uniform cap on the loan-to-value (LTV) ratio, setting it at 75% of the collateral's worth. This new regulation applies uniformly to Non-Banking Financial Companies (NBFCs), irrespective of the loan's purpose.

Enhanced Internal Accountability and Valuation Standards

RBI's draft guidelines, released on April 3, also call for greater internal accountability among lenders. Banks and NBFCs are now required to establish their own LTV limits based on internal risk assessments. Furthermore, a standardized framework for valuing gold collateral is to be introduced, ensuring transparency in the valuation process across all branches.

Focus on Borrower's Creditworthiness

The central bank emphasizes that lending decisions should prioritize the borrower's creditworthiness and cash flow needs over the value of the pledged gold. Loans intended for productive purposes must be classified by their end-use, marking a shift from the current collateral-based classification.

RBI Governor Sanjay Malhotra stated, "With a view to harmonizing regulations across regulated entities and addressing observed concerns, comprehensive regulations on prudential norms and conduct-related aspects for such loans will be issued." The proposals are part of RBI's developmental and regulatory agenda and will be finalized after public consultation.