LTV breather in RBI’s gold loan final directions a positive for NBFCs, says Crisil Ratings

However, disbursement at higher LTVs will mean lower cushion to manage gold price fluctuations and will necessitate a sharper focus on risk management practices and timely auctions to manage ultimate losses, says Malvika Bhotika, director, Crisil Ratings.
| Photo Credit: ANUSHREE FADNAVIS

The Reserve Bank of India’s (RBI’s) decision to increase the loan-to-value (LTV) ceiling in its final directions on gold loans will support the growth of non-banking financial companies (NBFCs) offering them, said Crisil Ratings in a study. 

“The benefit will play out despite the change in LTV computation for bullet repayment loans, which now need to also factor in the accrued interest payable at the time of maturity, rather than just the initial disbursed principal amount. The increase in LTV ceiling will help offset this impact,” it said.

The final directions issued recently propose an LTV grid based on ticket size and permit higher LTVs for lower-ticket consumption loans. The permitted increase in LTV is highest for loans with ticket size of ₹2.5 lakh, with the limit now at 85% vis-à-vis 75% earlier.

As per Crisil Ratings estimates, loans with a ticket size less than ₹5 lakh comprise close to 70% of the gold loan portfolio for NBFCs.

Malvika Bhotika, director, Crisil Ratings said, “The revision in LTV norms for lower-ticket loans is expected to benefit gold loan focused NBFCs in two ways. First, it will provide a higher cushion to meet the LTV requirements even after factoring in accrued interest in bullet repayment loans. Second, this will provide additional headroom for lending. For bullet loans, the LTV at disbursement could increase somewhat from 65-68% currently to 70-75%.”

“That said, disbursement at higher LTVs will mean lower cushion to manage gold price fluctuations and will necessitate a sharper focus on risk management practices and timely auctions to manage ultimate losses,” she said. 

The directions are applicable from April 1, 2026, giving NBFCs the required time to re-orient their systems and processes to comply with the revised regulations. 

While there could be some hiccups for certain players as they realign their operations, the regulations will benefit the sector, the rating agency said.