India’s gold loan market is undergoing a major policy and risk-management shift. Lenders are increasingly adopting tiered Loan-to-Value (LTV) ratios, where smaller loan amounts get higher permissible LTVs and larger loans have stricter caps. This approach balances financial inclusion with prudential risk controls, ensuring that borrowers can access funds while lenders stay protected from price volatility.
What is Loan-to-Value (LTV)?
LTV represents the percentage of the asset’s value a lender will finance. For example, if gold worth ₹1,00,000 is pledged and the LTV is 75%, the borrower gets ₹75,000 as a loan.
Tiered LTV Structure Explained
Under a tiered system, the LTV offered depends on the ticket size of the loan:
| Loan Size | Typical LTV Offered | Rationale |
|---|---|---|
| Up to ₹1 lakh | Up to 75–80% of gold value | Supports small borrowers with quick liquidity |
| ₹1–₹5 lakh | Around 70–75% | Moderated risk exposure for mid-size loans |
| Above ₹5 lakh | 65–70% or lower | Stricter cap to manage large-ticket risk |
This ensures that micro-borrowers and small businesses get more relief, while large-ticket borrowers are subject to tighter risk norms.
Why Lenders Use Tiered LTVs
Risk Management: Gold prices can fluctuate. Lower LTV on large loans protects banks from sudden price drops.
Financial Inclusion: Higher LTVs on small loans help farmers, households, and microenterprises access quick credit.
Regulatory Guidance: RBI periodically reviews LTV caps for gold loans to balance systemic risk and credit access.
Implications for Borrowers
Smaller Loans = More Cash: If you pledge gold for a small loan, you may get a higher percentage of its value.
Larger Loans = Lower Percentage: Large loans will require more gold for the same cash value.
Transparency Matters: Always check the LTV offered by different lenders to get the best deal.
Outlook
With the gold loan market expanding and gold prices staying volatile, tiered LTV ratios are likely to become standard practice. This model benefits both lenders and borrowers, ensuring sustainable growth in the segment.
Frequently Asked Questions (FAQ)
1. What is an LTV ratio in gold loans?
LTV stands for Loan-to-Value, the percentage of the gold’s market value that a lender offers as a loan.
2. How does a tiered LTV ratio work?
It gives higher LTVs for smaller loan amounts (benefiting low-ticket borrowers) and lower LTVs for larger loans to reduce risk.
3. Why do lenders adopt tiered LTVs?
To balance financial inclusion and risk management, ensuring that small borrowers get more access while large loans remain safer.
4. What is the maximum LTV allowed on gold loans?
It varies by lender and RBI guidelines, but small-ticket loans can go up to 75–80%, while large-ticket loans are usually capped at 65–70%.
5. How can borrowers benefit from this system?
By pledging gold for smaller loan amounts, borrowers can access a higher proportion of their gold’s value compared to large loans.
Published on : 15th September
Published by : SMITA
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