Under Chapter IV of the Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025, the maximum loan to value (LTV) ratio on consumption loans against gold or silver is 85, 80 or 75 per cent, depending on the total consumption loan amount per borrower. The ratio must hold throughout the tenor, not only at sanction.
This piece uses the version updated as on July 15, 2026, and calls it the Credit Facilities Directions. Paragraph numbers below refer to it.
LTV benchmark
Paragraph 43 sets these caps for consumption loans against eligible collateral, meaning jewellery, ornaments or coins made of gold or silver.
| Total consumption loan amount per borrower | Maximum LTV |
|---|---|
| Up to ₹2.5 lakh | 85 per cent |
| Above ₹2.5 lakh and up to ₹5 lakh | 80 per cent |
| Above ₹5 lakh | 75 per cent |
Three points decide how the table gets applied:
- The ratio is daily. LTV on a given day is the outstanding loan amount divided by the value of the pledged collateral on that day. Paragraph 44 requires the cap to be maintained throughout the tenor.
- Bullet loans use the maturity amount. A bullet repayment loan is one where principal and interest both fall due at maturity. For these loans, both the LTV calculation and the amount take in the total repayable at maturity.
- The caps apply to consumption loans. A consumption loan is any permissible loan that does not meet the definition of an income generating loan, which covers productive economic activity such as farm credit, business purposes or creating productive assets.
Paragraph 43 gives no table for income generating loans. Paragraph 32 requires the board approved credit policy to state the maximum LTV for loans against eligible collateral, so the number for these loans is set in each NBFC’s credit policy.
Who the rules cover
| Entity | Position under the Credit Facilities Directions |
|---|---|
| NBFC-D, NBFC-ICC, NBFC-Factor, NBFC-MFI, NBFC-IFC, IDF-NBFC, HFC | Applicable, for all layers unless specified otherwise |
| NBFC-BL with customer interface and no public funds | Conduct-related regulations apply, prudential regulations do not |
| CIC, NBFC-P2P | Only named paragraphs apply, none of them in Chapter IV |
| MGC, NBFC-AA, SPD, NOFHC, Type I NBFC | Not applicable |
The Directions are issued to NBFCs. Do not read these numbers across to banks or other lender types.
Collateral benchmark
Paragraph 39 caps the aggregate weight pledged for all loans to a borrower.
| Collateral | Gold | Silver |
|---|---|---|
| Ornaments | 1 kilogram | 10 kilograms |
| Coins | 50 grams | 500 grams |
Classification matters here. Jewellery means items designed to be worn as personal adornment. Ornaments means items for adorning an object, decorative items or utensils, excluding jewellery. Paragraph 39 names ornaments and coins only.
The Credit Facilities Directions also set out what cannot be financed or accepted:
| Rule | Paragraph |
|---|---|
| No loan to buy gold in any form, or to buy financial assets backed by gold, such as ETF or mutual fund units | 35(1) |
| No loan against primary gold or silver, or against financial assets backed by them | 35(2) |
| No loan where ownership of the collateral is doubtful, with a rightful owner document or declaration from the borrower in all cases | 36 |
| No borrowing by re-pledging collateral pledged by the NBFC’s own borrowers | 37(1) |
| No loan against gold or silver that other lenders hold as pledge from their borrowers. Financing a lender against underlying receivables stays open | 37(2) |
Valuation benchmark
The value in the LTV denominator follows paragraphs 40 to 42 of the Credit Facilities Directions.
| Item | Rule |
|---|---|
| Reference price | Price for the collateral’s actual purity (caratage) |
| Calculation | Lower of the average closing price over the preceding 30 days and the closing price on the preceding day |
| Price source | India Bullion and Jewellers Association Ltd. (IBJA), or a commodity exchange regulated by SEBI |
| Purity not published | Use the nearest published purity and adjust the collateral weight proportionately to actual purity |
| What counts | Intrinsic value of the gold or silver only. Stones, gems and other cost elements are not added |
Assessment, tenor and renewal benchmark
| Item | Rule under the Credit Facilities Directions | Paragraph |
|---|---|---|
| Detailed credit assessment | Required, including repayment capacity, when the total loan amount against eligible collateral to a borrower is above ₹2.5 lakh. For bullet loans, the test uses the total payable at maturity | 33 |
| Bullet consumption loan tenor | Capped at 12 months, renewable under paragraph 34 | 38 |
| Renewal or top-up | Needs a formal borrower request and credit assessment under paragraph 33, must stay within permissible LTV, and the loan must be standard | 34 |
| Bullet renewal | Only after accrued interest, if any, is paid | 34 |
| System marking | Renewals and top-ups must be clearly identifiable in the core banking or loan processing system | 34 |
| Disbursal | Generally into the borrower’s bank account, not a third-party account, subject to the listed exceptions | 46, 47 |
| Multiple loans | Simultaneous loans to a borrower or related group face stricter internal audit and supervisory examination | 48 |
| Disclosure | Balance sheet shows these loans as a percentage of total assets, separately for gold and silver | 50 |
Paragraph 32 also requires the policy to cover single borrower limits, aggregate portfolio limits, action on LTV breach, valuation standards and norms, and gold and silver purity standards.
Chapter IV gives no rupee or percentage figure for single borrower or aggregate portfolio limits, and it does not specify the action on breach or a purity standard. The number or standard for each is set in the NBFC’s credit policy.
Two items are more tightly prescribed. Paragraphs 40 to 42 lay down how collateral is valued, and paragraph 39 sets the per borrower weight caps above.
Worked example, made-up numbers
A borrower with no other gold or silver loans asks for a 12-month bullet consumption loan at 12 per cent a year, against jewellery weighing 44 grams, of which 4 grams is stones.
Step 1, value. Count 40 grams. The 22-carat 30-day average is ₹8,000 a gram and the preceding-day close is ₹8,200, so use ₹8,000. Collateral value is ₹3,20,000.
Step 2, test the structures.
| Principal | Amount at maturity | Cap | LTV | Result |
|---|---|---|---|---|
| ₹2,40,000 | ₹2,68,800 | 80 per cent | 84.0 per cent | Breach, though principal alone gives 75.0 per cent |
| ₹2,28,000 | ₹2,55,360 | 80 per cent | 79.8 per cent | Within cap, detailed credit assessment needed |
| ₹2,23,000 | ₹2,49,760 | 85 per cent | 78.1 per cent | Within cap, below the assessment threshold |
Step 3, monitor. Take the ₹2,28,000 structure. If the preceding-day close falls to ₹7,800 and sits below the 30-day average, value drops to ₹3,12,000 and LTV rises to 81.8 per cent. That is above the 80 per cent cap, and the lender’s policy on breach applies.
How it gets read, and where it goes wrong
- Principal-only LTV on bullet loans. It understates both the ratio and the amount used to pick the slab.
- Per-loan slab reading. The table works on the total per borrower, so a top-up or second loan can move the borrower to a lower cap.
- Two different thresholds. Paragraph 43 looks at total consumption loans. Paragraph 33 looks at total loans against eligible collateral. An income generating loan counts for the second test but not the first.
- Wrong purpose tag. The definition makes consumption the residual category. A loan tagged income generating without support may sit outside the cap only on paper.
- Gross weight valuation. Stones and other cost elements must come out before valuation.
- Wrong weight bucket. Decorative items and utensils are ornaments, so they count towards the weight cap.
- Across-lender reading. Paragraphs 39 and 43 speak of a borrower, without saying how holdings at other lenders are to be treated. Settle your reading with compliance and record it in the policy.
For conduct and collateral management, paragraph 45 points to the Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025, which this piece does not cover.
Checklist
- Lender type falls within the Credit Facilities Directions
- Collateral tagged as jewellery, ornament or coin, and not primary gold or silver
- Ownership declaration on file
- Purpose tagged consumption or income generating, with support
- Aggregate ornament and coin weight checked against paragraph 39
- Value uses the lower of the two prices, at actual purity, excluding stones
- Slab read on total consumption loans per borrower
- Bullet loans tested on the amount at maturity
- Bullet consumption loans have a tenor within 12 months
- Detailed credit assessment done if the paragraph 33 threshold is crossed
- Renewal or top-up meets paragraph 34 and is marked in the system
- Disbursal route meets paragraphs 46 and 47
- LTV monitored through the tenor, with breach action per policy
Sources
- Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025, rbi.org.in, accessed 2026-11-06