Gold loan non-banking financial companies (NBFCs), which had earlier downplayed the impact of the RBI’s draft gold lending guidelines, now fear that the proposed regulations — particularly the one on the loan-to-value (LTV) ratio limit — could hurt disbursements and drive borrowers back to unregulated lenders, as formal jewel loans become costlier.
“The only thing which we, as an Association of Gold Loan Companies (AGLOC), would like to bring to the attention of the regulator is that the LTV, which is being tweaked is not in the interest of the customer,” George Alexander Muthoot, MD, Muthoot Finance, said at the company’s Q4FY25 earnings call.
He added that the tweaked LTV norms will place NBFCs at a disadvantage in terms of pricing, forcing customers to go back to the unorganised money lenders.
Last month, the Reserve Bank of India (RBI) released the draft Lending Against Gold Collateral Directions, 2025, aimed at creating a more “principle-based and harmonised approach” across all gold loan providers—including commercial banks, co-operative banks, and NBFCs. The draft seeks to bring uniformity in underwriting standards, collateral management, and monitoring of end-use of funds. The RBI had set May 13 as the deadline for stakeholders to submit their feedback.
“We have definitely flagged this to the regulator and AGLOC has given a representation on this aspect to RBI,” Muthoot said.
Gold loan NBFCs have welcomed several aspects of the guidelines, including the harmonisation of lenders and greater clarity in the gold lending process. However, their primary concern lies with the proposed changes to the LTV norms.
The LTV ratio refers to the maximum amount a lender can offer as a loan against the value of the gold pledged. For instance, if the LTV is capped at 75%, a customer can borrow up to Rs 75 for every Rs 100 worth of gold.
Under the draft guidelines, the RBI has proposed that the 75% LTV cap should apply throughout the loan tenure, rather than only at the time of disbursal. According to an NBFC industry insider, this would effectively reduce the amount a customer can borrow, as lenders would have to factor in accrued interest over the loan’s duration as part of the total loan value.
Analysts at Motilal Oswal Financial Services say if the proposed LTV rule is implemented in its current form, lenders would need to set a lower disbursement LTV at the outset to ensure the overall LTV doesn’t breach the 75% mark after interest accrual. “For instance, with an interest rate of 20%, the effective disbursement LTV would be around 55%, and with a 10% interest rate, the LTV would be ~65%.”
The NBFC executive explained that under the proposed rule, if a customer pledges gold worth Rs 1 lakh and the interest rate is 20% per annum, then the lender can disburse only Rs 62,500 upfront to ensure the total loan value—including Rs 12,500 interest over one year—stays within the 75% LTV cap. At a 10% interest rate, the disbursement can go up to around Rs 68,000. “This effectively reduces the amount we can lend, making the product less attractive to borrowers,” they added.