RBI has proposed sweeping changes to how financial institutions lend against gold, tightening oversight in a bid to curb risks and bring greater transparency to a booming segment of the country’s credit market.

In draft guidelines released April 3, the Reserve Bank of India (RBI) proposed capping the loan-to-value (LTV) ratio for gold loans at 75% of the pledged gold’s worth. The move would standardize lending limits across banks and nonbank financial companies (NBFCs), ending a pandemic-era relaxation that had allowed NBFCs to lend up to 90% of the value of gold collateral for a year.

The new cap would apply uniformly, regardless of whether loans are intended for consumption, business, or other purposes—a significant shift that levels the regulatory playing field for NBFCs and banks alike.These proposals aim to harmonize regulations across entities while aligning them with risk-taking capabilities according to  RBI Governor Sanjay Malhotra.

India is one of the world’s largest consumers of gold, and borrowing against jewelry and bullion is a common way for households and small businesses to access credit. The sector has grown rapidly, particularly through NBFCs that target less formal borrowers, raising concerns about inconsistent lending practices and over-leveraging.

In addition to the LTV cap, the RBI is pushing for enhanced internal controls and transparency. Lenders will be expected to establish their own LTV thresholds based on internal risk assessments. A standardized valuation framework will also be introduced to ensure consistency in assessing gold collateral across branches.

Under the new rules, banks and NBFCs must disclose the reference price of gold used for loan calculations and implement a uniform methodology to evaluate purity and measure gross and net weights. This information must be made publicly available on their websites.

The proposals are part of the RBI’s broader developmental and regulatory agenda. A public consultation process is now underway, and final guidelines are expected later this year.

The central bank’s move signals a growing focus on borrower protection and market discipline in India’s informal lending space, where gold loans remain a crucial—but sometimes opaque—source of credit.