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Gold loan industry in India has been prevalent in the society since ages, but traditionally this market was totally unorganized as there was no involvement of any registered institutions. With the entry of organized players like banks and Non-Banking Finance Companies (NBFCs), the market scenario has changed significantly as organized players are growing rapidly in the market. To promote the growth of organized players, RBI has been continuously working towards creating standardized norms.
 
In a recent move, the Reserve Bank of India (RBI) decreed that loans for non-agricultural purposes backed by pledges of gold ornaments and jewellery has to have a Loan-To-Value (LTV) ratio of 75% against the pledged items. The tenure of such loans could also not exceed more than 12 months. Earlier, on 30 December, 2013, the Central bank had stated that the amount of loan sanctioned should not exceed INR 1 lakh at any point of time for such loans.
 
RBI has also standardized norms to value the gold for the purpose of calculating the LTV. As per this, gold jewellery accepted as collateral will have to be valued at an average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewelers Association Ltd, an industry body.
 
Annotating on the RBI’s move, Mr. Shushmul Maheshwari, CEO RNCOS said, “RBI’s latest move to ease the gold loan norms will promote the liquidity, thereby subduing the burden on the loan seekers. Also, it will have a substantially positive impact on consumers psyche”. Maheshwari opines, “Pragmatically, gold is lying idle within the households, not being a part of the mainstream economy. The moment it will flow to the mainstream economy, the growth potential for the economy will grow further”.
 
RNCOS also believes that with more financial institutions and banks entering this lucrative and safer business, the industry is set to grow manifolds, and is likely to surpass the mark of INR 2500 Billion by 2018. NBFCs will continue to enjoy a significant pie in the niche gold loan segment due to their expansive presence.