RBI Raises Gold Loan LTV Ratio to 85%: What It Means for Borrowers and the Market

 Published: June 6, 2025 | Author: Senior Finance Editor

In a major policy shift that has sparked a rally in gold loan stocks and brought relief to millions of small borrowers, the Reserve Bank of India (RBI) has raised the Loan-to-Value (LTV) ratio for gold loans from 75% to 85%. This decision, announced in the RBI’s latest monetary policy update, is expected to boost lending activity, improve financial inclusion, and ease liquidity pressures for low-income households and small businesses.

Let’s break down what this change means, why the markets are cheering, and how it will impact both lenders and borrowers.




📌 What Is the LTV Ratio, and Why Does It Matter?

The Loan-to-Value (LTV) ratio is the amount a lender allows a borrower to take as a loan, compared to the current value of the collateral—in this case, gold. For example:

  • Under the old rule (75% LTV), a borrower pledging ₹1,00,000 worth of gold could get up to ₹75,000 as a loan.

  • Now, with the LTV increased to 85%, that same borrower can get up to ₹85,000.

This extra liquidity is especially helpful for rural households, farmers, small traders, and informal businesses that often depend on gold loans to manage their cash flow.


💡 RBI’s Motivation: Supporting Small Borrowers

India’s rural and semi-urban population has always considered gold as a financial safety net. With gold prices consistently high, small gold loans have become a crucial credit lifeline for families during festivals, education seasons, or emergencies.

By raising the LTV cap and easing credit norms for loans under ₹2 lakh, the RBI has:

  • Reduced compliance pressure on lenders

  • Made loan disbursement faster

  • Increased the borrowing capacity for small-ticket loans

The move is seen as a pro-small borrower reform, especially significant in a time of rising inflation and sluggish rural consumption.


📈 Stock Market Reaction: Gold Loan Companies Surge

The market welcomed the RBI's move with a sharp rally in the stocks of major gold loan providers:

  • Muthoot Finance surged nearly 6%

  • Manappuram Finance saw a 4.5% jump

  • IIFL Finance and other NBFCs with gold loan exposure also witnessed gains

Investors are optimistic that the increase in LTV will translate into higher loan volumes, improved margins, and reduced risk of defaults, especially when supported by easing of KYC norms for small loans.


🔍 Operational Norms Eased for Small Loans

In addition to increasing the LTV ratio, the RBI has also simplified lending regulations for gold loans under ₹2 lakh. Key changes include:

  • No compulsory credit appraisal for small-ticket loans

  • End-use monitoring is only mandatory for loans under Priority Sector Lending (PSL)

  • Less paperwork and faster processing

These measures significantly reduce the burden on NBFCs and make it easier for borrowers to access formal credit without delays.


🏦 Why This Matters for India’s Credit Ecosystem

Gold loans are one of the fastest-growing segments in India’s NBFC sector. They offer quick disbursal, low default rates, and secure collateral.

The recent RBI changes are likely to:

  • Bring more informal borrowers into the formal credit system

  • Improve liquidity for small businesses

  • Stimulate rural consumption, especially ahead of the festive season

  • Increase competition among gold loan lenders

It’s also a signal that RBI is focused on inclusive lending—balancing financial stability with the need to provide flexible, responsive credit in underserved regions.


🧠 Expert Insights: What Analysts Are Saying

Market experts have been quick to call this a “game-changer” for gold loan financiers.

“This will significantly improve the asset under management (AUM) growth for NBFCs specializing in gold loans,” said a senior analyst at a Mumbai-based brokerage firm. “It also reduces the need for borrowers to turn to unregulated moneylenders.”

Another expert added,

“The increased LTV ratio is especially helpful in rural India, where formal credit access remains low but gold ownership is high.”


📊 What Borrowers Should Know

If you’re planning to take a gold loan, here’s how these changes benefit you:

FeatureOld RuleNew Rule
Maximum LTV75%85%
Appraisal Required (Below ₹2L)YesNo
End-Use MonitoringStrictRelaxed for non-PSL
Processing SpeedSlowerFaster

Borrowers can now expect quicker approval, less documentation, and higher loan amounts—a win-win in most scenarios.


🛑 Caution for Borrowers

While the increased LTV ratio gives you access to more funds, remember:

  • If the gold price falls, you may be asked to top-up your collateral

  • Always borrow only what you can repay

  • Check the interest rates carefully—higher LTV loans may carry slightly higher rates

Responsible borrowing is the key to maintaining a healthy credit profile.


📍 Conclusion: A Timely Boost for Bharat’s Credit Story

The RBI’s decision to raise the LTV ratio and simplify rules for small gold loans is more than just a regulatory tweak—it’s a confidence booster for India's credit-starved regions.

As NBFCs ramp up their gold loan offerings and more customers enter the formal lending space, we could witness a positive ripple effect across consumption, small business growth, and rural financial empowerment.

India has always treasured gold as a symbol of wealth. Now, thanks to smarter regulations, it’s becoming a tool for economic progress too.

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