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Gold Loan: RBI Proposes Tighter Norms To Boost Transparency, Consumer Protection
Moneylife Digital Team 09 April 2025
Consumer Interest
The Reserve Bank of India (RBI) has issued a comprehensive draft framework to regulate gold loans across all financial entities, aiming to plug regulatory gaps, enhance borrower protection and bring uniformity in how loans against gold and silver collateral are sanctioned, serviced, and recovered.
 
The proposed directions — titled Reserve Bank of India (Lending Against Gold Collateral) Directions, 2025— apply to commercial banks (excluding payments banks), urban and rural cooperative banks, and non-banking finance companies (NBFCs), including housing finance firms.
 
RBI says the draft is necessary to address 'macro-prudential concerns' and ensure loans backed by gold jewellery are used productively and not for speculative purposes.
 
"The revised instructions aim to put in place a harmonised regulatory framework… and address concerns relating to lending practices and conduct-related gaps," the central bank says in the draft note.
 
Under the proposed rules, lending against primary gold, such as bullion, bars, or gold-backed financial instruments like exchange-traded funds (ETFs) and mutual funds (MFs) will not be permitted. Loans cannot be issued against gold that has already been pledged elsewhere and all borrowers will be required to prove ownership of the gold jewellery or coins submitted as collateral.
 
For gold loans meant for consumption purposes, the loan-to-value (LTV) ratio is capped at 75%. Bullet repayment loans—where the entire principal and interest are paid at the end of the loan term—are restricted to a maximum tenure of 12 months. Further, such bullet loans by cooperative and rural banks will be limited to Rs5 lakh per borrower. Lenders must not accept more than 1kg of gold ornaments and 50 grams of gold coins per borrower.
 
The valuation of gold must be based on 22-carat purity, using the lower of the 30-day average price or the previous day's closing price as published by authorised bullion associations or SEBI-registered exchanges. Gold loans must only be disbursed after professional assaying, with clear deductions for stones, fastenings, or other non-gold elements. Borrowers must receive a certificate stating the purity, net weight, image and value of the pledged gold.
 
Loan documents will need to include full details of the collateral, auction terms in case of default and any charges or fees involved. Lenders are also required to communicate all terms and documents in the borrower's preferred language or the regional language of the area.
 
Gold storage must be handled only in branches with certified vault facilities and must remain under the custody of the lender's own employees. Any movement of gold between branches or to third-party vaults will require strict internal controls and documentation.
 
In the event of a loan default, RBI says lenders must provide at least one month's notice before auctioning the gold. "Auctions should be publicly advertised in two newspapers and cannot set a reserve price lower than 90% of the current market value. Any surplus proceeds from the auction must be returned to the borrower within seven working days. If there is a delay in returning the gold after loan repayment, lenders will have to compensate the borrower at the rate of Rs5,000 per day."
 
Gold that remains unclaimed for two years following repayment must be reviewed periodically by the institution's customer service committee or board of directors. RBI also expects lenders to be cautious about fraud, including issuing multiple loans to the same borrower against the same gold. It has also urged regulated entities to favour hallmarked gold jewellery when approving loans.
 
The draft directions, once finalised, will replace more than 30 circulars and notifications issued over the past six decades, thereby simplifying and modernising the regulatory framework for lending against gold. The central bank has invited stakeholders to provide comments and suggestions before the guidelines are made final.
Comments
dsathiboy
6 days ago
Dear sir/madam, why renewal is not allowed, how will one pay d full amount and pledge d next day, kinldy help us to take this to RBI.
Reply
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