The Reserve Bank of India (RBI) has notified comprehensive directions regulating loans against gold and silver collateral, bringing major relief to small and marginal borrowers, following intervention by the Government of India. The new framework, which came into force on June 6, 2025, replaces the draft guidelines issued earlier in April and introduces a harmonised, principle-based regulatory regime across banks and non-banking financial companies (NBFCs).
The development was confirmed by the Minister of State for Finance, Shri Pankaj Chaudhary, in a written reply to an unstarred question in the Lok Sabha on December 1, 2025.
Govt Intervenes on Behalf of Small Borrowers
The Ministry of Finance stated that serious concerns were raised with the RBI over the potential burden placed on low-ticket borrowers under the draft guidelines. The Department of Financial Services (DFS) formally requested the regulator to reconsider two major proposals in the draft framework:
- Mandatory assessment of repayment capacity for small borrowers, including farmers
- Requirement of documentary proof of ownership of gold
The government argued that such conditions could significantly impact poor households and farmers who rely on gold loans as a quick and accessible form of credit, especially in rural and semi-urban areas.
In response, RBI revised its approach in the final notification and introduced a threshold-based regulatory structure to protect vulnerable borrowers while ensuring greater transparency and discipline in the lending system.
Key Highlights of the Final RBI Directions
The RBI’s Directions on Lending Against Gold and Silver Collateral now introduce differentiated norms based on loan size:
Easier norms for small ticket loans
For gold loans up to ₹2.5 lakh, the regulator has significantly relaxed compliance requirements:
- No mandatory repayment capacity assessment below ₹2.5 lakh
- Maximum loan-to-value (LTV) ratio increased to 85% for consumption loans up to ₹2.5 lakh
- Simplified lending process to protect small and marginal borrowers
Stricter checks for higher-value loans
For loans above ₹2.5 lakh, more robust prudential norms have been introduced:
- Detailed credit and income assessment required
- Mandatory evaluation of repayment capacity
- Greater accountability for regulated entities in loan approval
Borrower-Friendly Communication Mandate
In a move aimed at improving transparency and consumer protection, RBI has mandated that all loan-related communication must be conducted:
- In the regional language, or
- In a language chosen by the borrower
This is expected to reduce misunderstandings related to loan terms, interest rates, tenure, and auction procedures.
Relief for Bullet Loan Borrowers
The new rules also address issues concerning “bullet repayment loans”, where interest and principal are paid together at maturity. RBI has now allowed:
- Renewal of bullet repayment loans upon payment of accrued interest
This offers significant relief to borrowers who faced automatic loan closures or forced auctions under rigid repayment conditions.
Uniform Rules for Banks and NBFCs
Another major feature of the new framework is regulatory harmonisation. The directions uniformly apply across all:
- Scheduled banks
- Cooperative banks
- NBFCs
- Housing finance companies
- Other regulated entities
This eliminates earlier inconsistencies in gold loan practices between banks and NBFCs, bringing the entire sector under one set of rules governing valuation, custody, lending terms, and borrower protection.
Wider Impact Expected
Experts believe the new framework strikes a balance between:
- Financial inclusion
- Consumer protection
- Regulatory discipline
While lenders will now face tighter compliance norms for larger loans, small borrowers are expected to benefit from easier access to credit without additional documentation or income scrutiny.
The government’s intervention is widely seen as a significant step to preserve gold loans as a dependable credit lifeline for farmers, daily wage workers, and small traders.
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