Gold Loan Shake-Up! RBI's New Guidelines to Target Muthoot & Manappuram—Borrowers to Receive Less

The fast-growing gold loan business in India is set for a sea change. S&P Global Ratings has stated that the Reserve Bank of India's comprehensive new rules—it will come into effect in full force from April 1, 2026—may reverse the conventional models of lending and compel lenders to remake their strategy.

One of the biggest rule-changers? Interest payable until maturity will be added into the Loan-to-Value (LTV) ratio. That is, borrowers may get much lesser loan amounts upfront—particularly if gold prices go down.

Another major change: loans of consumption amounting to more than USD 3,000 and all income-generating loans will now require cash flow analysis. This is a major break from the existing practice of making disbursements purely based on the worth of pledged gold.

The RBI is also putting the screws on customer protection by introducing the following new norms:

Disbursals of more than ₹20,000 should be credited directly into bank accounts

Excess of auction and pledged gold need to be repaid within 7 working days

Tougher regulations on interest charges, fee transparency, and outsourcing

Large NBFC players such as Muthoot Finance and Manappuram Finance, which corner the gold loan space, will find themselves in the spotlight. They'll have to completely revamp risk models and retrain employees—while maintaining competitiveness through quick, transparent service.

S&P also cautions about risks: increased LTV on income-based loans could expose the lenders to gold price risk. Although gold has risen 80% from late 2023, a steep correction would hurt loan books severely.

Curiously, NBFCs continue to carry a 100% risk weight on gold loans, while banks have a 0% charge—putting them at an unequal playing field that can now be subject to more scrutiny.

Also Read: Why NSE, BSE Stay Resilient Amid Israel-Iran Conflict?