Gold loan stocks rally as RBI hikes loan-to-value ratio limit to 85%, eases small loan norms

Gold financiers rally as RBI lifts loan cap and eases rules for small borrowers

Gold finance stocks were buzzing in trade on June 6 after RBI Governor Sanjay Malhotra stated that the loan-to-value for gold loans below Rs 2.5 lakh is set to be revised to 85 percent from 75 percent,  giving NBFCs greater lending flexibility. This led to sharp buying in gold financiers like Muthoot Finance, Manappuram Finance, and IIFL Finance, with their stocks rising between 2 to 7 percent.

This is a major positive shift from the earlier draft regulations, which had proposed to cap the LTV at 75 percent uniformly across banks and NBFCs. The updated guideline now allows NBFCs to offer more loans against the same gold collateral, which is expected to boost loan disbursements, attract more borrowers, and improve earnings growth for gold financiers.

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Additionally, the Governor clarified that for small-ticket gold loans, credit appraisal will not be required, and end-use monitoring will only apply to those under the Priority Sector Lending (PSL) category. This simplification of operational norms will reduce paperwork, speed up processing, and lower compliance burden for lenders.

"There was nothing new in the draft norms on gold loans. We have consolidated all other norms. We have seen some regulated entities were not following the norms because there was no clarity hence we have consolidated it. We will today or by Monday morning release the final guidelines," Malhotra added.

On the broader policy front, the RBI also cut the repo rate by 50 basis points to 5.50 percent, marking its third consecutive cut in 2025. Alongside, a 100 basis point reduction in the Cash Reserve Ratio (CRR) has also been announced. These moves are expected to inject liquidity into the banking system, encouraging banks to lower deposit rates and expand credit.

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