Editor’s Note
The Reserve Bank of India is intensifying oversight of gold-backed loans due to a significant drop in gold prices, a move that places heightened scrutiny on major lenders in this sector.
Following a 15% drop in gold prices, the Reserve Bank of India (RBI) has initiated strict monitoring of gold loan portfolios, increasing pressure on companies like Muthoot Finance and Manappuram Finance.
NEW DELHI. The Reserve Bank of India (RBI) has significantly tightened its monitoring of the gold loan portfolios of banks and Non-Banking Financial Companies (NBFCs). The primary reason behind this sudden increase in strictness is the sharp 15% decline in gold prices since January 30, 2026. In fact, the gold loan market had witnessed a tremendous surge recently due to rising gold prices, but this sudden drop in prices has now increased the risk for lending institutions.
The RBI wants to ensure that falling gold prices do not adversely affect the asset quality of banks and finance companies. When gold prices fall, the loan-to-value (LTV) ratio—the proportion of the loan amount to the value of the pledged gold—gets disrupted. Amid these concerns, shares of major gold loan companies like Muthoot Finance and Manappuram Finance have also recorded a decline in the stock market.
There are several important reasons and potential risks behind this special monitoring by the RBI, which are essential to understand:
LTV Ratio Risk: According to regulations, the value of a gold loan should not exceed 75% of the price of the pledged gold. A 15% drop in gold prices could push many older loans beyond this limit, increasing the risk of default.
Artificial Portfolio Growth: The growth seen in gold loan portfolios last year was more due to rising gold prices than new customers. Now, with prices falling, there is a fear of this ‘balloon’ deflating.
Preparation for Stricter Rules: New RBI guidelines are set to take effect from April 1, 2026. These include very stringent rules regarding purity standards and periodic monitoring of valuations.
The impact of this monitoring will directly affect companies whose entire business is based on gold loans. The RBI can now demand data from these institutions or conduct stress tests on their portfolios. If prices remain volatile, companies may have to ask customers for additional margin or to deposit more gold.
Key Points: Gold Price, RBI Stance, Affected Companies, New Framework
Latest Update: 15% drop since Jan 30, Close Monitoring, Muthoot, Manappuram, major banks, Effective from April 1, 2026
Potential Impact: Reduction in collateral value, Increased audits and data scrutiny, Pressure on stock prices, Risk management to become stricter
The sudden 15% drop in gold prices has alerted the RBI, leading to strict monitoring of the gold loan portfolios of banks and NBFCs. The RBI’s main objective is to prevent an increase in banks’ non-performing assets (NPAs) due to falling prices. Following this news, volatility has increased in the shares of companies in the gold loan sector. The new rules effective from April 1, 2026, and the current monitoring indicate that both taking and giving gold loans will come under stricter regulatory scrutiny in the coming times.