India's new gold loan rules to reshape lenders' business models: S&P

S&P said these changes will have the greatest impact on non-bank lenders heavily reliant on gold loan portfolios.

New rules from India's central bank will make lenders in the booming gold loan market overhaul their underwriting practices and brace for higher near-term costs, S&P Global Ratings said in a note on Wednesday.

The Reserve Bank of India's final guidelines on gold-backed lending, issued earlier this month, mandate a shift to cash flow-based credit assessments and tighter monitoring of loan-to-value (LTV) ratios.

S&P said these changes will have the greatest impact on non-bank lenders heavily reliant on gold loan portfolios.

“The first is that finance companies face upfront costs as they transition to a cash flow-based assessment of the borrower's creditworthiness," said Shinoy Varghese, credit analyst at S&P Global Ratings.

Lenders have until April 1, 2026, to comply with the new norms. While the rules allow greater flexibility in offering short-tenor loans for consumption borrowing, the inclusion of interest rates in LTV calculations may shrink actual disbursals to borrowers, the ratings agency said.

S&P said that gold-loan specialists like Muthoot Finance and Manappuram Finance will likely face the steepest adjustments.

It also warned that as lenders broaden their risk appetite and explore new loan structures, the sector may become more vulnerable to sharp corrections in gold prices.