The Reserve Bank of India (RBI) has released draft guidelines that propose significant changes to the gold loan segment and co-lending arrangements. These revisions aim to standardize lending practices, strengthen risk controls, and broaden credit access—especially for smaller businesses. Here’s a breakdown of the key proposals:
Gold Loan Regulations: Key Provisions
- Loan-to-Value (LTV) Cap:
All lenders, including NBFCs, must maintain a maximum LTV ratio of 75% for gold loans. - Policy Integration:
Gold loan norms must be embedded within lenders’ internal credit policies. This includes:- Exposure limits for borrowers
- Monitoring end-use of funds
- Restrictions on loans backed by primary gold or gold-related financial assets
- No lending where the ownership of collateral is uncertain
LTV Ratio & Ongoing Compliance
- Tenure-Wide Monitoring:
The 75% LTV ceiling must be upheld throughout the loan’s duration. - Penalty for Breach:
Exceeding the LTV cap will trigger an additional 1% provisioning requirement. - Branch-Level Consistency:
Lenders must ensure uniform assessment of gold weight and purity across all branches. - Use-Based Categorization:
Distinction must be made between loans used for income generation and consumption.
Broadened Co-Lending Scope
- Beyond Priority Sector Lending (PSL):
Co-lending arrangements are no longer limited to PSL. Banks and NBFCs can now:- Collaborate on non-PSL loans
- Reach micro and small enterprises typically underserved by banks
- Improved Access to Finance:
This move is expected to expand credit channels for local businesses, supporting inclusive growth.
Revised Credit Enhancement Norms
- Capital Relief:
Regulated entities will benefit from relaxed capital requirements for credit enhancements. - Increased Enhancement Cap:
The permissible credit enhancement has been raised from 20% to 50% of the bond issue size. - Use of Proceeds:
Funds raised through enhanced bonds can now be used to:- Repay existing bank loans
- Free up credit limits for new infrastructure projects
Impact of Gold Loans and Co-Lending on the Financial Sector
Standardization & Clarity:
These guidelines aim to bring greater transparency and uniformity to gold loan practices.
Risk Reduction:
Enhanced compliance measures will help reduce credit and collateral risk in gold-backed lending.
Boost for MSMEs:
Expanded co-lending options are set to improve financing opportunities for small enterprises, contributing to broader economic growth.
Market Outlook:
Analysts expect these changes to strengthen the overall lending ecosystem, paving the way for a more regulated and growth-friendly financial environment.
