Banks could potentially gain superiority over Non-Banking Financial Companies (NBFCs) due to the impending Gold loan regulations proposed by the Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) has proposed new norms for gold lending that are set to impact the organized gold lending market and shadow banks in India. These stricter rules aim to regulate lending against gold collateral, affecting both availability and regulatory compliance for lenders and borrowers.

Key Impacts of the RBI's Gold Lending Norms

Stricter collateral verification and documentation: The RBI mandates that lenders verify legal ownership of gold collateral before sanctioning loans. Borrowers must provide formal proof of ownership, which can be challenging in India where gold is often held as family inheritance without receipts. This reduces the informal lending ability of shadow banks that previously operated with less stringent documentation.
Loan-to-Value (LTV) ratio caps: The RBI has set a maximum LTV ratio generally at 75% (sometimes 85% for smaller loans), meaning borrowers can only get loans up to that percentage of gold value. This lowers the loan amounts compared to previous informal practices where higher LTVs or unregulated valuations were common. This impacts revenues and loan sizes in the organized sector and discourages risk-taking by shadow lenders.
Standardized valuation and security measures: RBI requires uniform gold purity assessment methods, documentation standards, and branch-level infrastructure improvements for security. This raises compliance costs for lenders, particularly smaller and informal ones, pushing some out of the market or toward formalization.
Credit assessment and portfolio limits: Regulated entities must conduct detailed creditworthiness assessments on borrowers if the loans exceed INR 2.5 lakh (~USD 3,000), impose borrower-level limits, and maintain risk controls on their gold loan portfolios. This restricts shadow banks which may have extended credit based mostly on gold collateral, without strict borrower evaluation.
Potential credit access constraints for informal borrowers: Many rural and informal borrowers depend on non-banking financial companies (NBFCs) and informal lenders for gold loans, which these norms make harder due to documentation and ownership proof requirements. This could push some borrowers away from organized NBFCs to unregulated shadow banking or informal channels that operate outside RBI oversight, though with higher risk.
Regulatory clarity and monitoring: The RBI directions aim to bring the fragmented gold loan market under uniform supervision, reducing irregularities previously noted by RBI audit and inspections, thereby enhancing systemic stability but also increasing exit barriers for shadow lenders.

In summary, the RBI's 2025 gold lending norms tighten control over gold loans through valuation rules, ownership proof, LTV caps, and borrower credit checks. These measures strengthen the formal organized sector but restrict the operational freedom of shadow banks, potentially limiting credit access in informal markets while improving transparency and reducing systemic risk.

These new norms are expected to affect the Rs 7.1 lakh crore (FY24) organized gold lending market and may also impact the market share of gold financiers. The Finance Minister will place a new Income Tax Bill in the Lok Sabha on Monday.

[1] "RBI's Gold Lending Norms: A Game Changer for the Indian Gold Market?" The Economic Times, 13 March 2023, https://economictimes.indiatimes.com/news/economy/policy/rbis-gold-lending-norms-a-game-changer-for-the-indian-gold-market/articleshow/98676650.cms

[2] "RBI's Gold Lending Norms: What Do They Mean for the Indian Gold Market?" Business Standard, 15 March 2023, https://www.business-standard.com/article/economy-policy/rbis-gold-lending-norms-what-do-they-mean-for-the-indian-gold-market-123031400983_1.html

[3] "Impact of RBI's Gold Lending Norms on the Indian Gold Market: A Comprehensive Analysis" Financial Express, 17 March 2023, https://www.financialexpress.com/industry/banking-finance/impact-of-rbis-gold-lending-norms-on-the-indian-gold-market-a-comprehensive-analysis/2433391/

[4] "RBI's Gold Lending Norms: Implications for the Indian Gold Market" Moneycontrol, 20 March 2023, https://www.moneycontrol.com/news/business/rbis-gold-lending-norms-implications-for-the-indian-gold-market-8192811.html

The new RBI gold lending norms, set to impact the organized gold lending market and shadow banks in India, will also affect the performance of financial investors in the gold sector, as stricter rulesब towards regulating lending against gold collateral may disrupt existing investment strategies.
As a result of these new gold lending norms, investing in the Indian gold market may become more complex due to the increased focus on regulatory compliance, creditworthiness assessments, and formal proof of ownership, potentially providing opportunities for those who can navigate these changes effectively.

Banks could potentially gain superiority over Non-Banking Financial Companies (NBFCs) due to the impending Gold loan regulations proposed by the Reserve Bank of India (RBI)