RBI raises LTV ratio for small ticket loan against gold

Mumbai, Jun 6 (PTI) The RBI on Friday raised the loan-to-value (LTV) ratio for lending against gold to 85 per cent for borrowings under Rs 2.5 lakh from the present 75 per cent, and spelt out other conditions with an aim to regulate the category in a better way with minimum risk.

The LTV ratio has been fixed at 80 per cent for loan amounts between Rs 2.5 lakh and Rs 5 lakh and 75 per cent for loans above Rs 5 lakh, said the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025.

LTV ratio on a day means the ratio of the outstanding loan amount to the value of the pledged eligible collateral as on that day. In case of bullet repayment loans, however, the LTV calculation shall take into account the total amount repayable at maturity.

It further said a lender shall not extend a loan where ownership of the collateral is doubtful.

"A suitable document or declaration shall be obtained from the borrower in all cases to the effect that the borrower is the rightful owner of the eligible collateral," according to the latest directions.

Further, multiple or frequent sanction of loans against eligible collateral to the same borrower, aggregating to a value in excess of a threshold to be decided by the lender, must be examined closely as part of the transaction monitoring under the anti-money laundering (AML) framework.

According to the directions, a lender should not grant any advance or loan against primary gold or silver or financial assets backed by primary gold or silver, like, units of Exchange-traded funds (ETFs) or units of mutual funds.

The RBI said the aggregate weight of ornaments pledged for all loans to a borrower shall not exceed 1 kilogram for gold ornaments, and 10 kilograms for silver ornaments.

The aggregate weight of coin(s) pledged for all loans to a borrower shall not exceed 50 grams in case of gold coins, and 500 grams in case of silver coins.

"Gold or silver accepted as collateral shall be valued based on the reference price corresponding to its actual purity (caratage)," RBI said.

A lender will have to release or return the pledged eligible collateral held as security to the borrower(s)/ legal heir(s) on the same day but in any case, not exceeding a maximum period of seven working days upon full repayment or settlement of the loan.

A few months ago, the RBI had come out with a draft on gold lending, and Malhotra made it clear that the draft is just a reiteration and consolidation of all the regulations issued earlier.

Earlier in the day, RBI Governor Sanjay Malhotra said among other facets, the new gold loan rules will also give clarity on the ownership and include the facility for a self-declaration from the borrower in case he is unable to furnish receipts of the purchase.

It will do away with the need for credit appraisal for loans of up to Rs 2.5 lakh where gold is a collateral, he said.

The end-use monitoring of loans will be compulsory only if a lender is taking advantage of a loan by classifying it as among priority sector lending, the governor said.

The RBI said the directions have to be complied with as expeditiously as possible but no later than April 1, 2026.

Loans sanctioned prior to the date of adoption of the directions by the RBI regulated entities will continue to be governed by the extant guidelines applicable. PTI NKD CS TRB