What changed
RBI introduced a mandatory Loan to Value (LTV) ratio of not exceeding 75% for all loans against gold jewellery, replacing earlier guidance that only required usual safeguards. Valuation methodology is now standardised: gold must be valued at the average of the preceding 30 days' closing price of 22-carat gold as quoted by IBJA. For gold of lower purity, banks must convert it to 22-carat equivalent and value proportionately.
What it means for you
Banks must immediately cap gold loan disbursements at 75% of the collateral's value, which may reduce loan amounts for customers and impact gold loan portfolios. The standardised valuation method removes discretion, ensuring transparency but requiring system updates to fetch IBJA prices and compute 30-day averages. Banks must also review and update their board-approved gold loan policies to reflect these new prudential norms.
What you must do
- Update loan sanction systems to enforce a maximum LTV of 75% for all gold jewellery loans, including bullet repayment products.
- Adopt the IBJA 30-day average closing price for 22-carat gold as the sole valuation benchmark for collateral.
- Implement a process to convert lower-purity gold to 22-carat equivalent and value it proportionately.
- Review and revise the board-approved policy on lending against gold jewellery to incorporate these new requirements.
- Train credit and operations staff on the new valuation and LTV rules to ensure consistent application.
Who it affects
All scheduled commercial banks (excluding RRBs) offering gold jewellery loans, Retail lending teams handling gold loan products, Credit risk and policy departments, Operations teams managing collateral valuation and disbursement
Does the 75% LTV cap apply to all types of gold loans?
Yes, the circular explicitly includes bullet repayment loans against pledge of gold jewellery, so it covers both traditional and bullet repayment structures.
How should we value gold jewellery that is not 22 carats?
You must convert the jewellery to its 22-carat equivalent weight and then value it using the IBJA 30-day average closing price. For example, 18-carat gold would be valued at 18/22 of the 22-carat price.
What happens if we already have a board-approved policy for gold loans?
You need to update that policy to explicitly incorporate the 75% LTV cap and the standardised valuation method, and get the revised policy approved by your board.