The growth of non-banking financial companies (NBFCs) focused on gold loans is likely to slow down significantly if the Reserve Bank of India’s draft directions on gold-backed lending are implemented in their current form, Crisil Ratings has said.
RBI’s draft norms, introduced in April 2025, aim to harmonise lending practices across regulated entities and strengthen borrower protection. However, Crisil has said that key provisions related to loan-to-value (LTV) ratios and bullet loan renewals could constrain the lending capacity of NBFCs.
"The directions on LTV computation and breaches thereof could impact the growth prospects of gold loan NBFCs as they will have to recalibrate their disbursement values," said Malvika Bhotika, Director at Crisil Ratings.
Crisil, in its report, has estimated that gold loan NBFCs may need to reduce their LTV at disbursement from the current 65-68 percent to around 55-60 percent to comply with the revised norms, especially for bullet loans that include accrued interest in the LTV calculation.
RBI’s revised draft also stipulated that if the 75 percent LTV cap is breached for 30 consecutive days, lenders must set aside an additional one percent provision. While this provisioning requirement is higher than current norms, Crisil does not anticipate a major hit to NBFCs’ profitability, due to their strong pre-provisioning buffers.
In a further tightening move, the RBI has proposed that bullet loan renewals or top-ups be allowed only after accrued interest is fully repaid. Crisil's report said that this could limit borrower flexibility and disrupt the seamless renewal of loans that many NBFCs currently offer.
The RBI's draft directions are part of a broader push for regulatory consistency, after observing a sharp rise in gold loan portfolios, particularly among banks. Lenders’ gold portfolio saw a 104 percent growth last fiscal, compared to over 50 percent combined loan book growth for banks and NBFCs.
Other regulatory proposals include a 12-month cap on bullet loan tenures, mandatory use of banking channels for disbursements and collections above Rs 20,000, and stricter norms for gold valuation and auction.
While implementation could create short-term operational hiccups for NBFCs, Crisil said the new framework will structurally strengthen the sector over time, improving transparency and risk management.
The final impact on the credit profiles of rated NBFCs, however, will depend on the RBI’s finalised directions following industry feedback on the draft, the report added.
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