Loans amount capped at 65% of gold value, RBI issues draft rules

The Reserve Bank of India has released a new draft proposing stricter norms for gold loans, limiting the loan-to-value (LTV) ratio to 65% of the gold's market value. This is a significant change from the existing 75% LTV allowed earlier, especially for bullet repayment loans.

According to the proposal, banks and financial institutions will now be barred from disbursing loans above 65% of gold’s average market price (calculated using the 30-day average of rates published by the Bullion Association). For example, for gold worth ₹7 lakh, a borrower will get a maximum of ₹4.55 lakh in loan. This measure aims to reduce default risks, especially if gold prices fall before repayment.

The RBI also raised the bullet repayment loan cap from ₹4 lakh to ₹5 lakh. Under bullet repayment, borrowers need not pay anything for up to 12 months, and can clear both interest and principal in one go at the end of the term. While this helps customers with flexibility, the central bank noted that a drop in gold prices during the term could lead to shortfalls, increasing risk for lenders.

To protect borrowers, RBI has mandated that if a customer repays the entire loan, the lender must return the gold within seven days. Failure to do so would attract a daily penalty of ₹5,000 for the lender — even if the customer doesn’t turn up to collect the gold after being notified.

The RBI has also proposed strict measures around gold ownership. Borrowers will need to establish ownership, especially for gold without bills — common in cases like wedding gifts. In such cases, lenders must take a declaration from the borrower and bear the responsibility of verifying its authenticity. This could complicate loans against undocumented gold, often held by women as part of dowry.

The rules will now apply equally to banks, NBFCs and private gold finance companies, which were earlier following different standards. While banks typically charge 8-10% interest, NBFCs and private firms often charge 14-16%, along with hidden costs. Some lenders reportedly impose extra 4% interest retroactively for a single missed instalment, which the RBI aims to regulate more strictly.

India’s gold loan market has seen an 87% jump in the last year, with loans totalling ₹1.91 lakh crore in FY 2024–25 — far outpacing credit card growth, which rose by only 11% in the same period.