SUMMARY

The Reserve Bank of India (RBI) has proposed new guidelines to regulate gold loans, aiming to enhance transparency, mitigate risks, and standardize lending practices across banks and non-banking financial companies (NBFCs).

What are the Proposed Regulatory Measures?

• Loan to Value (LTV) Ratio Cap: The maximum LTV ratio is proposed to be capped at 75%, including accrued interest for bullet repayment loans.

• Collateral Eligibility: Only gold jewellery and specified bank-issued gold coins (minimum 22-carat purity) would be accepted as collateral. Gold bars, bullion, and non-bank-issued coins would be excluded.

• Ownership Verification: Borrowers must provide proof of ownership for the pledged gold. In the absence of purchase receipts, a signed declaration would be required.

• Loan Purpose Monitoring: Lenders would need to monitor the end-use of loans, especially distinguishing between consumption and income-generating purposes.

• Bullet Repayment Tenure: For consumption loans, the tenure for bullet repayments would be capped at 12 months.

Key Reasons for the Proposed Changes

• Surge in Gold Loans: Between December 2023 and December 2024, outstanding gold loans grew by over 27%, reaching ₹11.1 lakh crore.

• Rising Non-Performing Assets (NPAs): NPAs in the gold loan segment increased by approximately 28.6% during the same period, indicating growing repayment challenges.

• Inconsistent Lending Practices: Variations in valuation methods, loan-to-value (LTV) ratios, and collateral assessments have led to potential risks for both lenders and borrowers.

Government's Response

The Finance Ministry has recommended exempting gold loans below ₹2 lakh from these stringent norms to protect small borrowers, particularly in rural areas. Additionally, it has suggested deferring the implementation of the new rules to January 1, 2026, allowing lenders adequate time to adjust.

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