The Reserve Bank of India's (RBI) proposed guidelines on gold lending have been a subject of considerable debate in recent times. While the central bank aims to standardise the gold loan sector, there have been concerns that its implementation may impact small-ticket borrowers. Recently, the finance ministry intervened, proposing an exemption for loans under ₹2 lakh. Let’s take a closer look at how this move might affect borrowers, especially those seeking small gold loans.
The RBI’s draft gold lending norms are designed to improve the standardisation of gold loan regulations, enhance collateral management, and strengthen underwriting processes. These guidelines are seen as an attempt to ensure greater transparency and reduce risks associated with gold-backed loans. However, the proposed norms also present several challenges, particularly for smaller borrowers who typically seek loans under ₹2 lakh.
In a rare move, the finance ministry announced that it would recommend exempting loans under ₹2 lakh from the RBI’s draft guidelines. The finance ministry’s intervention comes amid mounting concerns about the potential impact on small borrowers who rely on gold loans as a source of quick credit.
According to a report, 60-70% of gold loan borrowers take loans of less than ₹2 lakh, with an average loan size of ₹1.1-1.2 lakh. The proposal, if approved by the RBI, aims to ensure that small-ticket borrowers are not adversely impacted and can continue to access credit without turning to unregulated lenders with usurious interest rates.
Gold-backed loans are a primary source of short-term credit for many in rural India, particularly for agricultural and other small-scale activities. The proposed regulations had already drawn concerns from several lenders and borrowers.
The draft guidelines mandate that the loan-to-value (LTV) ratio, including accrued interest, must remain within 75% throughout the loan’s tenure. Currently, lenders typically disburse around 65-68% of the pledged gold’s value. Reducing this to 55-60% could either lead to smaller loan amounts or require borrowers to pledge more gold to obtain the same amount.
Moreover, the requirement for borrowers to provide proof of gold ownership could exclude many genuine borrowers, as gold in India is often inherited or gifted, with no formal documentation to establish ownership. Another contentious provision is the scrutiny of end-use, which could prove challenging for borrowers from the informal economy who lack formal income proof.
Read More: Best Gold ETFs in India for June 2025.
While the RBI's draft guidelines aim to standardise the gold loan sector, the finance ministry's proposed exemption for loans under ₹2 lakh reflects a balancing act between regulation and accessibility for smaller borrowers.
The exemption, if accepted, would protect millions of small borrowers from being pushed into the unregulated sector, ensuring that they continue to receive timely and affordable gold-backed loans. However, further deliberations and adjustments will likely follow to address concerns from both lenders and borrowers in the coming months.
This development emphasises the delicate balance between regulation, market accessibility, and the financial needs of small borrowers, especially in rural areas where gold loans play a critical role in economic activities.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Published on: Jun 6, 2025, 2:59 PM IST
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