RBI gold loan guidelines 2025: Impact assessment and key changes

The Indian banking sector is undergoing a significant regulatory shift, moving from traditional rule-based frameworks to principles-based governance. This transition, led by the Reserve Bank of India (RBI), seeks to foster innovation while ensuring risk-calibrated growth. Governance and compliance have emerged as central priorities, with regulators focusing on data security, customer privacy, and fair lending practices. There is particular attention on lending practices among smaller NBFCs, MFIs, and fintechs, where concerns such as inadequate risk assessment, high loan-to-value (LTV) ratios, and poor KYC compliance have persisted.

In June 2025, the RBI released its final circular on gold loans, largely addressing consumption gold loan practices. The revised regulations apply to all commercial banks, NBFCs, cooperative banks and housing finance companies. This framework emphasizes borrower-friendly reforms, stricter conduct rules and disciplined growth. A key highlight is the introduction of tiered gold loan LTV ratios, designed to support smaller borrowers while imposing stricter caps on larger loans.

Under the new guidelines, gold loans up to INR2.5 lakh can have an LTV of up to 85%, a notable increase from the previous 75%. Loans between INR2.5 lakh and INR5 lakh are capped at 80%, while loans above INR5 lakh are limited to 75%. This incremental approach allows small-ticket borrowers, often from rural and semi-urban areas, access to more funds against their gold collateral, while higher-ticket loans remain tightly regulated.

The RBI has also addressed bullet repayment gold loan rules, mandating that loans where principal and interest are repaid at the end of the term must be settled within 12 months. Additionally, the LTV ratio for such loans will now be calculated based on the total repayment due at maturity rather than the disbursed amount, closing previous gaps in monitoring and compliance. These changes aim to prevent LTV breaches and enforce consistent adherence throughout the loan tenure.

To enhance transparency, the circular includes gold loan auction rules. Borrowers must be present during valuation, and any surplus from gold auctions must be returned within seven working days. Similarly, lenders are required to release pledged gold or silver within seven working days of loan closure, with penalties of INR5,000 per day for delays. These measures are designed to instill discipline, reduce disputes and protect borrower interests, particularly in smaller NBFCs and banks where operational inconsistencies have been observed.

The reforms are expected to influence lending strategies significantly. While small-ticket loans benefit from higher LTVs, large-ticket loans may see constrained growth, particularly under the bullet repayment model. For instance, to remain compliant under stable gold prices and an interest rate of 17%–18%, lenders issuing loans above INR5 lakh may need to limit initial LTV to approximately 63%–64%. Borrowers may respond by pledging additional gold or opting for shorter-tenure loans, while lenders may shift strategically toward EMI-based repayment structures to manage compliance, albeit with potential yield compression.

The circular also permits gold loan renewals and top-ups, provided there is sufficient LTV headroom and accrued interest is repaid in the case of bullet repayment loans. Renewals or top-ups require formal borrower requests and fresh credit appraisals, with clear identification in core banking or loan processing systems. This clarity addresses previous ambiguities around rollovers and reduces the risk of evergreening.

A significant aspect of the guidelines is the focus on borrower-centric credit appraisal. Previously, most lenders focused primarily on gold collateral value, often overlooking borrower repayment capacity. Under the new framework, all gold loans must be anchored to the borrower’s repayment ability, supported by robust due diligence and end-use monitoring.