RBI Gold Loan Directions: Monitoring, LTV and Risk Limits
Why in the news
In May 2025, RBI asked banks and NBFCs to tighten controls over gold loans, especially outsourced and third-party activity.
Lapses found in supervisory review
- Weak LTV (Loan-to-Value) monitoring and wrong risk weights.
- Poor control of third-party sourcing and appraisal.
- Weak due diligence, end-use monitoring and auction transparency.
April 2025 draft
| Point | Detail |
|---|---|
| LTV ceiling | 75%, including principal and accrued interest |
| Bullet repayment loans | Disbursal 55-60%, from 65-68% |
| EMI loans | Higher LTV may be allowed |
Portfolio risk management
- Set and review a ceiling on gold-backed loans as a share of total advances, considering granularity, collection efficiency, auction realisation, capital adequacy and concentration.
Significance
- Curbs over-leverage and operational and credit risk, aiding stability.
Exam angle
- Draft LTV cap: 75%.