Margin Requirements / Loan to Value (LTV)

Question 1

What is Loan to Value (LTV)?

Answer 1

The maximum percentage of an asset’s value that a lender (bank or NBFC) is willing to finance with a loan.
It is determined by the Reserve Bank of India (RBI).

Question 2

Why does the RBI adjust LTV ratios?

Answer 2

To regulate lending in the economy.
To manage risk for lenders.
To influence affordability (for example, when buying a home).
To stimulate or curb economic activity in specific sectors.

Question 3

Give an example of how increased LTV can benefit borrowers.

Answer 3

In the case of gold loans, increasing LTV allows borrowers to get a higher loan amount for the same quantity of gold pledged.
This can help businesses get the funding they need for post-pandemic revival.

Question 4

True or False: LTV applies only to home loans.

Answer 4

False. LTV can be applied to various loans including gold loans, auto loans, and business loans.

Question 5

Fill in the blank: A higher LTV generally means a ______ down payment is required from the borrower.

Answer 5

Lower