New gold loan norms will enhance risk standards for NBFCs: Fitch

The Reserve Bank’s draft regulatory enhancements for gold-backed loans offer greater clarity to market participants, which should reduce regulatory uncertainty and variability in lender compliance, though some changes may raise operational complexities for lenders, but large companies with adequate resources should be able to navigate them, says rating agency Fitch Ratings India in its latest report.

- 

The new draft follows earlier observations of the Reserve Bank on irregular gold lending practices, released in September 2024, and introduces provisions on customer notification and reimbursement procedures to strengthen customer protection. Broader disclosures will also improve market transparency on lenders’ gold-backed loan performance.

According to Siddharth Goel, a director for non-banking financial institutions ratings at Fitch, the key enhancements in the norms, which RBI says are aimed at harmonising the lending norms for all players, include linking borrower repayment capacity to the approved loan amount and providing more guidance on regulatory loan-to-value (LTV) calculations.