RBI Eases Gold Loan Norms, Lifts LTV Cap to 85%; Financier Stocks Surge

In a policy announcement that reverberated across the Indian financial markets, shares of key non-banking financial companies (NBFCs) offering gold-backed loans soared on June 6 after the Reserve Bank of India (RBI) announced a significant revision in loan-to-value (LTV) norms for gold loans. The central bank has now permitted NBFCs to offer loans up to 85 percent of the value of gold for small-ticket loans—defined as loans below ₹2.5 lakh. This decision marks a substantial deviation from the draft regulations proposed earlier, which had sought a uniform LTV cap of 75 percent for both banks and NBFCs.

The market responded positively to the announcement, with stocks of Muthoot Finance, Manappuram Finance, and IIFL Finance registering gains between 2 to 7 percent during intraday trade. Investors interpreted the regulatory shift as a clear signal of increased profitability and loan volume growth for companies specializing in gold-backed financing, particularly those targeting rural and small-town borrowers.

Highlights:

• RBI raises gold loan LTV cap for loans under ₹2.5 lakh from 75% to 85%.

• Muthoot Finance, Manappuram Finance, and IIFL Finance see sharp stock upticks.

• NBFCs expected to see greater borrower traction and improved disbursement volumes.

Regulatory Easing Unlocks Greater Lending Headroom for NBFCs

The earlier draft proposal from the RBI had drawn significant concern from gold loan financiers, particularly NBFCs, who argued that a blanket cap of 75 percent LTV would reduce their competitiveness vis-à-vis banks. The finalized guidelines, announced by RBI Governor Sanjay Malhotra, restore a differentiated approach that favors financial inclusion by allowing NBFCs more headroom when dealing with small borrowers.

Under the updated norms, NBFCs can now extend loans up to 85 percent of the pledged gold’s market value for ticket sizes below ₹2.5 lakh. This adjustment enhances the affordability of loans for customers and allows NBFCs to mobilize additional business from their existing gold holdings. Industry experts believe this change will support higher credit uptake in semi-urban and rural markets, where gold assets are often the primary form of collateral available to households.

Highlights:

• Policy shift reverses earlier restrictive draft LTV proposals.

• Enhanced LTV benefits rural and informal borrowers dependent on gold assets.

• Competitive edge restored for NBFCs operating in gold loan space.

Simplified Credit Appraisal to Accelerate Processing and Boost Efficiency

Another notable change introduced by the RBI is the relaxation of credit appraisal norms for small-ticket gold loans. As per the revised guidelines, NBFCs will not be required to perform full-scale credit appraisals for loans under ₹2.5 lakh, unless these loans fall under the Priority Sector Lending (PSL) category. Additionally, the obligation to monitor the end-use of funds has also been waived in non-PSL cases, reducing the administrative overhead on lenders.

This operational simplification is expected to lead to faster loan approvals, reduced paperwork, and greater efficiency for NBFCs. The decision will likely improve turnaround times and lower borrower acquisition costs—critical metrics for financial institutions with wide rural footprints. Analysts anticipate that this move could increase both the volume and velocity of gold-backed lending.

Highlights:

• No mandatory credit appraisal for gold loans under ₹2.5 lakh unless under PSL.

• End-use monitoring dropped for non-PSL small-ticket loans.

• Operational burden eased, improving lending efficiency and cost-effectiveness.

Governor Malhotra Emphasizes Regulatory Clarity and Final Guidelines Timeline

Speaking on the rationale behind the policy shift, RBI Governor Sanjay Malhotra clarified that the new measures are intended to consolidate and clarify gold loan regulations. According to him, inconsistencies in earlier frameworks had led to varied interpretation and implementation by regulated entities. The new norms aim to bring transparency and uniform compliance, while also responding to industry feedback.

Malhotra also noted that the final guidelines would be published by the end of the day or by the morning of June 9. His remarks signaled that the central bank is willing to remain responsive to industry dynamics while maintaining oversight. The emphasis on regulatory clarity is seen as a move to prevent systemic risks while facilitating lending innovation among NBFCs.

Highlights:

• RBI aims to unify and clarify earlier gold loan norms for regulated entities.

• Final version of updated guidelines to be issued within 24–48 hours.

• Regulatory consistency aimed at improving sectoral compliance.

Accommodative Monetary Policy Complements Sector-Specific Reforms

In addition to the gold loan-specific announcements, the RBI unveiled a broader monetary policy stimulus that includes a 50 basis point cut in the repo rate, bringing it down to 5.50 percent. This is the third consecutive rate cut in 2025, reflecting the central bank’s intent to spur economic activity amid global uncertainties and subdued domestic demand. The central bank also reduced the Cash Reserve Ratio (CRR) by 100 basis points, thereby infusing additional liquidity into the banking system.

These rate decisions are expected to encourage commercial banks and NBFCs to expand their lending portfolios. For gold loan providers, the dual impact of eased LTV norms and increased system liquidity creates an optimal environment to deepen credit penetration, particularly in regions where formal banking access remains limited.

Highlights:

• RBI reduces repo rate by 50 bps to 5.50%; third cut in 2025.

• 100 bps CRR cut injects fresh liquidity into the banking system.

• Eases credit flow to the broader economy, including NBFC-led gold lending.

Investor Sentiment Remains Bullish on Gold Loan Sector Outlook

The twin announcements of regulatory easing for gold loans and supportive monetary policy have led to bullish sentiment among institutional and retail investors. Brokerage firms have already begun revising their target prices for key gold loan stocks, citing stronger earnings visibility, improved loan growth metrics, and lower compliance risks.

Market analysts believe that Muthoot Finance and Manappuram Finance stand to benefit the most given their deep rural penetration and high reliance on small-ticket lending. IIFL Finance, with its growing digital gold loan platform, is also poised to capitalize on the lower appraisal and documentation requirements. As the final guidelines are released, investor focus will shift toward the implementation timelines and asset quality trends in the upcoming quarters.

Highlights:

• Brokerages revise targets upward for gold loan NBFCs.

• High rural penetration and digitized loan platforms seen as key strengths.

• Implementation of new norms likely to drive medium-term stock performance.