FPJ News Service mumbai

The Reserve Bank’s (RBI) new rules on gold-backed loans will likely lead to business model adjustments in the country's booming lending niche, S&P Global Ratings said on Thursday. Lenders have until April 1, 2026, to prepare for the changes. “Operational agility and service excellence will remain the key differentiator between lenders. We see two impacts of the new rules as the most notable,” said S&P Global Ratings credit analyst Shinoy Varghese.

The first is that finance companies face upfront costs as they transition to a cash flow based assessment of the borrower's creditworthiness, rather than just appraisals on the value of the gold collateral “We also think lenders will have more latitude to offer shorter-tenor loans for gold-backed consumption loans, allowing smaller borrowers to unlock more value from their pledged gold assets,” Varghese added.

Short-tenor loans will help lenders retain customers in a shifting landscape. Such loans have run into regulatory headaches in the past, because they have a higher odds of being “rolled over”. The new rules add some regulatory clarity and consistency.

Moreover, loan-to-value ratios (LTV) appear relaxed for gold-backed consumption loans. At the same time, however, the LTV calculation will have to include interest rates in the calculation. This effectively could limit the upfront loan amount disbursed, something which lenders will try to overcome as this goes against typical borrower preference.

In our view, the adjustment to credit appraisals will be bigger for the nonbank financial companies with dominant gold-based loan books, such as Muthoot Finance (BB+/Stable/B) and Manappuram Finance (BB-/Stable/B).