Editor’s Note
New RBI guidelines are poised to reshape India’s gold loan sector, favoring lenders that can quickly adapt. As S&P Global Ratings notes, this shift may enhance flexibility for shorter-term consumer lending.
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The Reserve Bank of India’s (RBI) new guidelines are set to bring about a major transformation in the ‘Gold Loan’ sector. Lenders with the ability to rapidly adapt their business models will be able to benefit from these new rules. This information was provided in a report released by S&P Global Ratings on Thursday. The report believes that lenders will have greater freedom to offer shorter-tenure loans for gold-backed consumption loans, enabling smaller borrowers to derive more value from their pledged gold assets.
Lenders have time until April 1, 2026, to prepare for the changes. The report highlights two key elements of the new rules. The first is the inclusion of interest payments until maturity in the calculation of the Loan-to-Value (LTV) ratio.
The second is the application of loan assessment based on cash flow analysis of borrowers for consumption-focused loans above $3,000 and all income-generating loans.
According to the report, the adjustment in loan valuation will be significant for non-banking financial companies (NBFCs) with major gold-based loan books, such as Muthoot Finance Limited (BB+/Stable/B) and Manappuram Finance Limited (BB-/Stable/B).
Bridging the skill gap to appoint and train loan officers for assessing repayment capacity is both an upfront cost and a hurdle for these lenders. The report highlights the likelihood of rapid adjustments in the model. It expects lenders to gradually increase the proportion of short-term products with three-month and six-month maturities.
The report believes the RBI’s latest rules provide clarity on loan renewals. The rules now mandate that renewal is subject to full repayment of interest. The report also anticipates an increase in income-generating loans. According to the report, even as lenders experiment with new models, the real difference will be their ability to deliver loans quickly and seamlessly.