Gold Loan
Every RBI rule that touches Gold Loan, simplified for bankers. 0 published.
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How RBI’s 75% LTV cap applies to a bullet-repayment gold loan
A gold loan can be structured as a monthly-interest loan or a bullet-repayment loan, where principal and interest are cleared in one payment at maturity. RBI applies the 75% loan-to-value (LTV) ceiling to the maturity value of a bullet loan, which is what makes its eligible principal smaller. Here is how a lender works it out:
- Value the pledged gold. Assay the ornaments and value only the gold content (purity x net weight x a reference gold price), excluding stones, gems and other materials. This assessed value is the base the cap is applied to.
- Project the maturity value. In a bullet-repayment loan, principal and interest are not serviced monthly but fall due together in a single payment at maturity, so the amount the borrower owes at the end is principal plus all the interest accrued over the tenure.
- Apply the 75% cap to that maturity value. RBI's loan-to-value ceiling of 75% is applied to the maturity value (principal + accrued interest), not just to the principal disbursed. Because interest is loaded into that figure, the sanctioned principal has to be set lower than on a monthly-interest loan against the same gold.
- Back-solve the sanction amount. Work backwards: choose a principal P so that P plus the interest that will accrue over the tenure stays within 75% of the assessed gold value. As gold prices or tenure rise, the eligible principal falls.
- Monitor LTV and follow auction rules on default. The 75% test is monitored on an ongoing basis; if the gold's value falls and the ratio is breached the lender may seek a part-payment or additional collateral. On default the gold is auctioned under transparent rules - prior borrower notice, a reserve price, and any surplus after dues returned to the borrower.
Say the assessed gold-content value is ₹1,00,000 and the borrower wants a 12-month bullet loan at 12% p.a. The maturity amount may not exceed 75% of the gold value, i.e. ₹75,000. Solving principal P where P + (P × 12% × 1 year) = P × 1.12 ≤ ₹75,000 gives a maximum principal of about ₹66,964. A monthly-interest loan on the same gold, where interest is paid as you go, could be sanctioned closer to the full ₹75,000. Figures are illustrative; the exact computation follows the applicable RBI circular linked below.
This is our plain-English explainer, not RBI text; every rule links to its official page on rbi.org.in. under the editorial review of Vikram Jain. Independent platform, not affiliated with the Reserve Bank of India.
Frequently asked questions
What is the maximum loan-to-value (LTV) on a gold loan?
The regulatory LTV ceiling is 75% — the sanctioned amount must not exceed 75% of the value of the pledged gold’s content, monitored on an ongoing basis. For bullet-repayment loans the 75% test is applied to the maturity value (principal plus accrued interest), so the disbursed principal is set lower to stay within the cap. The exact computation is in the RBI circular linked in the cluster below.
What is the difference between a monthly-interest and a bullet-repayment gold loan?
In a regular EMI or monthly-interest gold loan the borrower services interest periodically over the tenure. In a bullet-repayment loan the whole principal and interest are repaid in a single instalment at maturity — RBI applies the 75% LTV to the maturity value and keeps such loans short-tenor (commonly up to 12 months) to control the build-up of unpaid interest against the collateral.
How long can a gold loan run, and what happens at maturity?
Tenure is set by the lender within RBI’s conduct framework, with bullet-repayment loans typically short-tenor. At maturity the borrower repays or renews; on default the lender must give notice and may auction the gold under transparent rules — with a reserve price and any surplus, after dues, returned to the borrower.
How must the pledged gold be valued and auctioned on default?
Lenders must value gold on a standardised, documented basis (purity/assay against a reference rate), and on default follow transparent auction rules: prior borrower notice, a reserve price, and return of any surplus after recovering dues. The full procedure is set out in the applicable circular.
Are bank and NBFC gold-loan rules the same?
RBI has moved to harmonise valuation, the 75% LTV treatment and fair-conduct norms across banks and NBFCs, though some operational specifics still differ by lender type. Always read the entry that matches your institution.