Gold loan companies want the minimum Tier I capital requirement lowered to 10 percent to match other NBFCs. Currently, these firms must keep 12 percent. Officials said, "The industry view is that this differential deserves to be reviewed." Lowering this requirement would help them provide more credit to underserved customers.
Loans against jewellery for NBFCs, especially GLCs, are growing at a robust pace
Gold loan companies (GLCs) are eyeing for parity with other non-banking financial companies (NBFCs) on the minimum Tier I capital requirement so that their capital costs come down and they can give more credit to the underserved customers.
As per regulations, while NBFCs, including GLCs, are required to maintain a regulatory minimum capital to risk-weighted assets ratio (CRAR) of 15 per cent, the minimum Tier I capital requirement within this for GLCs and other NBFCs is at 12 per cent and 10 per cent, respectively.
Capital requirement
GLC top officials argue that, given that their loans are secured by a highly liquid collateral (gold), they are subject to loan-to-value requirements, and recovery through liquidation of the collateral is relatively hassle-free, the minimum Tier I capital requirement could be brought down to 10 per cent.
Tier-I capital, or own funds, comprises shareholders' funds, retained profits, compulsorily convertible preference shares and perpetual debt instruments up to a limited extent less regulatory deductions. Tier-II capital comprises subordinated debt, hybrid debt instruments, preference shares not convertible into equity, and revaluation reserves, among others.
"There is a need for examining whether the current risk weighting and capital requirements for gold loans appropriately reflect the actual collateral and recovery characteristics of the asset. For NBFCs, the Tier 1 capital requirement applicable to gold-loan assets has historically been higher than for some other categories of NBFCs. The industry view is that this differential deserves to be reviewed," said the CEO of a GLC.
Finance industry expert V Vishwanathan observed that since Tier I is higher within the overall CRAR for GLCs, these companies have to raise their own funds periodically, as retained earnings might not be sufficient to support an expanding gold loan portfolio.
"If a level playing field is established, like other NBFCs, GLCs can also strategise to expand their Tier II sources of funding without relying on increasing Tier I alone all the time.
"So, if the minimum Tier-I capital requirement reduces to 10 per cent (from the current 12 per cent) and the headroom for Tier-II capital proportionately increases within the overall CRAR of 15 per cent, GLCs will be encouraged to expand their risk-weighted assets (loans)," he said.
Loans against jewellery for NBFCs, especially GLCs, are growing at a robust pace. This is underscored by the fact that in July 2026, the off-take of these loans jumped to 68.5 per cent y-o-y against 43.9 per cent y-o-y growth in July 2025.