Why RBI’s Draft Norms Could Transform India’s Gold Loan Market

In a bid to tighten compliance and protect borrowers, the Reserve Bank of India (RBI) has released a draft proposal that could significantly reshape the landscape of gold and silver-backed lending. These guidelines are expected to bring uniformity across banks and NBFCs while enhancing transparency, borrower rights, and risk mitigation practices. 

What Does the RBI propose? 

The RBI’s draft guidelines introduce several reforms that aim to ensure safe, fair, and transparent lending practices in the gold loan sector. A key highlight is the capping of the loan-to-value (LTV) ratio at 75% for all gold loans a rollback to pre-pandemic norms.

This cap ensures that lenders remain cautious about overleveraging gold assets, protecting both institutions and borrowers from market volatility. 

Focus on Ownership and Documentation 

To prevent misuse and fraudulent pledging, the draft mandates borrowers to prove ownership of the gold being pledged. In the absence of purchase receipts, borrowers must provide a signed declaration of ownership. Loans will not be sanctioned if there are doubts about the authenticity or ownership of the collateral. 

Borrowers will also be issued comprehensive documentation regarding the pledged gold, including details on weight, purity, deductions, and photographic evidence. This move ensures greater transparency and helps borrowers better understand how their gold is being valued. 

Eligibility and Restrictions 

Not all gold or silver items will qualify as collateral under the new rules. Only high-purity gold jewellery (22 carats or above), ornaments, and certain officially sold gold coins such as India Gold Coins sold through banks are permitted. For the first time, silver coins are also allowed as collateral, provided they meet strict purity (minimum 925) and minting standards. 

The guidelines introduce weight-based caps as well: up to 1 kg of gold ornaments and 50 grams of gold coins per borrower. This aims to prevent excessive concentration of collateral risk while ensuring access to credit remains practical for most households. 

Valuation and Repayment Terms 

All gold, regardless of actual purity, must be valued based on the prevailing rate for 22-carat gold. This uniform valuation method promotes consistency and reduces scope for arbitrary assessments. In addition, bullet repayment loans, where repayment is made in one lump su,m will have stricter LTV calculations based on the total amount due (principal plus interest). 

Detailed loan agreements will now become mandatory, outlining every aspect of the loan: charges, valuation methodology, auction conditions, repayment schedules, and penalties. 

Borrower Rights and Penalties for Lenders 

In a notable shift towards borrower empowerment, the RBI proposes that pledged collateral must be returned within 7 working days of repayment. Failure to comply will result in a penalty of ₹5,000 per day, incentivising lenders to streamline their post-repayment processes. 

Read More: RBI’s Gold Loan Norms May Hit Growth of Muthoot, Manappuram, and Others. 

Conclusion 

These draft regulations signal a turning point in India’s gold loan ecosystem. While they impose more structure and compliance on lenders, they offer greater clarity, protection, and confidence to borrowers. With gold loans playing a critical role in household credit access, particularly for small businesses and rural borrowers, these changes could bring more fairness and efficiency to one of India’s most traditional financial practices. 

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.