Gold loan companies eye parity on minimum Tier I capital requirement with other NBFCs

NBFC-backed jewellery lending, particularly by GLCs, is expanding at a strong rate

Gold loan companies (GLCs) are seeking regulatory parity with other non-banking financial companies (NBFCs) concerning the minimum Tier I capital mandate. Achieving this would reduce their capital costs, enabling them to extend more credit to underserved segments.

Under current regulations, while NBFCs, including GLCs, must maintain a regulatory minimum capital to risk-weighted assets ratio (CRAR) of 15 per cent, the minimum Tier I capital component within that ratio sits at 12 per cent for GLCs and 10 per cent for other NBFCs.

Capital Rules

Top GLC officials argue that since their loans are backed by highly liquid collateral (gold), subject to loan-to-value rules, and recovery via collateral liquidation is relatively straightforward, the minimum Tier I capital requirement could be lowered to 10 per cent.

Tier-I capital, or own funds, includes shareholders’ funds, retained profits, compulsorily convertible preference shares, and perpetual debt instruments up to a capped limit, less regulatory deductions. Tier-II capital consists of subordinated debt, hybrid debt instruments, preference shares not convertible into equity, and revaluation reserves, among other items.

“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 noted that since Tier I carries a higher weight within the overall CRAR for GLCs, these companies are compelled to raise their own funds periodically, as retained earnings may not suffice to support a growing 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, particularly GLCs, are witnessing robust growth. This trend is highlighted by the fact that in July 2026, the uptake of these loans surged 68.5 per cent year-on-year, compared to a 43.9 per cent year-on-year growth in July 2025.

Published on October 5, 2026