Daijiworld Media Network - New Delhi

New Delhi, Jun 19: The Reserve Bank of India’s latest regulations on gold loans are set to significantly transform the country's rapidly growing gold-backed lending sector, with adaptable lenders poised to benefit the most, according to a report released by S&P Global Ratings on Thursday.

The new norms will offer lenders greater flexibility to extend shorter-tenure consumption loans, helping smaller borrowers access more value from their gold holdings. However, the report emphasizes that operational agility and customer service will be critical for lenders to stay ahead in the changing environment.

Lenders have until April 1, 2026, to comply with the updated framework, which introduces two key changes:

1. Loan-to-Value (LTV) Ratio Recalculation – Now, interest payable until maturity must be included in LTV calculations. This may reduce the initial loan amount disbursed to borrowers, which goes against common borrower expectations, prompting lenders to innovate around this limitation.

2. Mandatory Cash Flow-Based Credit Appraisals – For all income-generating loans and consumption loans above USD 3,000, lenders must now assess borrowers’ repayment capacity using cash flow analysis rather than relying solely on the gold’s collateral value.

This shift is expected to challenge Non-Bank Financial Companies (NBFCs) heavily invested in gold loans, such as Muthoot Finance and Manappuram Finance, which traditionally focus on collateral over income analysis. These firms will need to upskill loan officers and revamp risk management processes to stay compliant and competitive.

The report predicts a rise in shorter-term loan products—with 3- to 6-month durations—as lenders seek to retain customers and optimize under the new interest-repayment conditions. Previously, some NBFCs discontinued such models due to regulatory concerns, but the new guidelines now provide clarity, allowing renewals only after full interest repayment.

The evolving norms are expected to benefit low- and middle-income borrowers, offering more upfront value from their gold assets and promoting access to credit for consumption needs.

Additionally, income-generating loans could see increased lender focus, with less stringent LTV rules and a growing appetite for portfolio diversification.

While lending strategies may evolve, the report underlines that speed and seamless service delivery will remain the defining strength of NBFCs in this niche market. Investments in customer relationships, skilled personnel, and data analytics will be key to navigating the transition and maintaining market leadership.