What changed
RBI accepted recommendations from the K.U.B. Rao Working Group on gold loans. NBFCs must now have safe deposit vaults and security at every branch lending against gold; new branches exceeding 1000 need prior approval. Gold valuation must use the 30-day average closing price of 22-carat gold from The Bombay Bullion Association Ltd., with written disclosure of purity and weight to borrowers.
What it means for you
NBFCs with over 50% gold loan assets must invest in branch infrastructure, slowing expansion. The branch cap of 1000 forces consolidation and stricter internal controls. Standardized valuation reduces arbitrariness, making LTV ratios more predictable and transparent, but may compress margins for lenders relying on opaque pricing.
What you must do
- Audit all branches for safe deposit vaults and security; upgrade any lacking facilities immediately.
- Submit prior approval application to RBI before opening any branch that would cause total branches to exceed 1000.
- Adopt the 30-day average closing price of 22-carat gold from The Bombay Bullion Association Ltd. to calculate LTV; update loan systems accordingly.
- Provide borrowers a written certificate stating gold purity (carats) and weight, converting lower purity to 22-carat equivalent.
- For new NBFC registration with >50% gold loan assets, include storage infrastructure proof in the application.
Who it affects
All NBFCs (excluding Primary Dealers) lending against gold jewellery, NBFCs with over 50% of financial assets in gold loans, NBFCs planning branch expansion beyond 1000 branches, New applicants seeking NBFC registration with gold loan focus
How should we value gold collateral under the new rules?
Use the average of the closing price of 22-carat gold for the preceding 30 days as quoted by The Bombay Bullion Association Ltd. For gold of lower purity, convert to 22-carat equivalent and state the exact grams in writing to the borrower.
Do we need RBI approval to open a new branch if we already have 900 branches?
No, prior approval is mandatory only when total branches would exceed 1000. However, any new branch must have a safe deposit vault and adequate security for gold storage before opening.
What if our branch lacks a safe deposit vault? Can we still lend against gold?
No. RBI mandates that no business of granting loans against gold can be transacted at places without proper storage and security facilities. Existing branches must arrange infrastructure at the earliest.