The Reserve Bank of India, on 6-Jun-2025 came out with the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025. Summarizing the changes in the directions for various Regulated Entities (REs).
Purpose of the Directions:
- Recent collosal growth in gold price and the consequent growth in the gold loans has put the limelight on the space and that triggered RBI to revise the directions to reflect the reality of the day
- A few malpractices were observed during the audits of certain REs and that has necessitated certain clarifications on certain ambiguous issues
- There is a variation in the regulations followed by various categories of lenders which the RBI has sought to eliminate/reduce through these directions
Important Terms:
- Income Generating Loan (IGL): Loans extended for the purpose of productive economic activities, such as farm credit, loans for business or commercial purposes, loans for creation or acquisition of productive assets, etc.
- Consumption Loan (CL): All loans other than Income Generating Loans
- Loan to Value (LTV) ratio: Ratio of outstanding loan amount to the value of the pledged collateral as on that day.
- Bullet Repayment Loans (BRL): Loans where both the principal and the interest are due for payment at the maturity of the loan.
Corollary:
| Sr. No. | Direction | Impact |
| 1 | For BRLs, the LTV should be calculated taking into account the total amount repayable at the maturity | Neutral Clarity on an earlier ambiguous scope |
| 2 | The REs are permitted to set their own credit policy defined LTV for the IGLs | Positive Will spur competition and innovation in the space |
| 3 | Detailed credit assessment including assessment of the borrower's repayment capacity for loans having eligible loan amount > 2.5L | Negative Delays due to additional credit assessment requirement |
| 4 | Top-up allowed upon a formal request from the borrower within the permissible LTV limits provided that the gold loan is standard | Positive Clarity on an earlier ambiguous scope |
| 5 | Renewals of BRL shall be allowed only after payment of accrued interest, if any. | Negative Additional interest repayment requirement as compared to the extant practices |
| 6 | Gold repledging between institutions for lending is disallowed | Negative Many Banks lend to NBFCs based on repledging the gold at the moment. Likely to create liquidity crunch in the small NBFC space. |
| 7 | 1 kilogram per borrower limit for gold jewellery/ornament lending10 kilogram per borrower limit for silver ornament lending | Negative Restrictive as compared to the extant regulations where there is no such limit |
| 8 | 50 grams per borrower limit for gold coins500 grams per borrower limit for silver coins | Positive Currently NBFCs do not lend against gold coins |
| 9 | LTV restrictions for bullet consumption loans | Negative Effective LTV in these cases turns out to be lower than the extant industry practices for NBFCs |
| 10 | Presence of the borrower(s) mandatory while assaying the collateral at the time of sanctioning the loan | Negative Will restrict digital lending models at the margin |
| 11 | All communication with the borrower, especially, the terms and conditions of the loan, or other important communication which affects the interest of the borrower or the lender, shall be in the language of the region or in a language as chosen by the borrower. For an illiterate borrower, important terms and conditions shall be explained in the presence of a witness, who shall not be an employee of the lender. |
Neutral |
| 12 | The gold and/ or silver collateral is handled only in its branches and only by its employees. | Negative Will restrict digital/fintech lending models at the margin |
| 13 | Reserve price for the gold and silver collateral at the time of auction shall not be less than 90% of its current value | Neutral Reserve price increased from current 85% |
| 14 | In case of any damage to the pledged eligible collateral by the lender during the tenor of loan, the cost of repair shall be borne by the lender. | Neutral Clarity on an earlier ambiguous scope |
| 15 | In case of delay in release of the pledged collateral after full repayment or settlement of loan by the borrower, where reasons for delay are attributable to the lender, the lender shall compensate the borrower(s)/ legal heir(s) at the rate of ₹5,000 for each day of delay beyond the timeline prescribed at paragraph 35 above. | Positive Clarity on an earlier ambiguous scope |
| 16 | Fund flow restrictions - Loan disbursals are made to the borrower's account and not to a third-party account except for disbursals covered exclusively under statutory or regulatory mandate (of RBI or of any other regulator), flow of money between lenders for co-lending transactions and disbursals for specific end use, provided the loan is disbursed directly into the bank account of the end-beneficiary.Loan servicing, repayment, etc. is executed by the borrower directly in the lenders' bank account without any pass-through account or pool account of any third party. | Positive Clarity on an earlier ambiguous scope - takeovers |
Applicability: Not later than 1-Apr-2026 but the Regulated Entities may choose to comply before that date.
Action Items:
| Sr. No. | Action Item | Description |
| 1 | Credit Policy | Credit policy for gold loans which definesSingle borrower limitsAggregate limitsMaximum LTV permissibleAction on LTV breachTop-up pilicyValuation standards/normsDocumentation for PSL classificationStandard Operating Procedure havingAssaying procedureAssayer onboarding process/criteraAuction procedureTrigger event for auctionTimeline for serving noticesNotice period to borrower/legal heirMode of auctionAuctioneer empanelmentSoP and compensation for loss/damage of borrower gold |
| 2 | SoP for credit risk assessment for loans > 2.5L | |
| 3 | Top-up request application form format for the borrower | |
| 4 | Gold ownership declaration | Suitable declaration from the borrower in all cases to the effect that the borrower is the rightful owner of the eligible collateral |
| 5 | Display on website | Display on website, the methodology adopted for determination of net weight of the gold and silver content of the eligible collateral and the price used to value the gold and silver content of the eligible collateral for determination of LTV ratio |
| 6 | Compensation./Reimbursement process | The process for making reimbursement or compensation as per the policy or SOP in case of loss of gold/silver, shall also be communicated to the borrower(s)/ legal heir(s) |
| 7 | Addition of auction procedure to the loan agreement terms / KFS | Auction procedureCircumstances leading to the auction of the eligible collateralNotice period allowed to the borrowerTimeline for refund of surplus, if any |
| 8 | Addition to the loan agreement / KFS | Timelines for release of pledged collateral upon full repaymentAll applicable charges |
| 9 | Valuation certificate | A certificate/e-certificate in duplicate on letterhead regarding the assay of the collateral and state therein the purity (in terms of carats); gross weight of the eligible collateral pledged; net weight of gold or silver content therein and deductions, if any, relating to weight of stones, lac, alloy, strings, fastenings, etc.; damage, breakage or defects, if any, noticed in the collateral; image of the collateral; and the value of collateral arrived at the time of sanctionOne copy of the certificate/e-certificate shall be kept as part of the loan documents and the other copy be given to the borrower under their acknowledgement. |
| 10 | Audit clause addition to the loan agreement | A clause in the loan agreement shall be included for obtaining consent of the borrower(s) to carry out surprise verification including assay of the pledged eligible collateral even in their absence during the tenor of the loan. This aspect shall be specifically communicated to the borrower at the time of sanctioning the loan. |
| 11 | Loan Account statement for auctioned loans to be mandatory | After the auction, the lender shall mandatorily provide full details of the value fetched at the auction and the dues adjusted to the borrower(s)/ legal heir(s). The surplus, if any, from the auction of the gold or silver collateral, shall be refunded to the borrower(s)/ legal heir(s) within a maximum period of seven working days from the date of receipt of the full auction proceeds. The lender may recover shortfall, if any, as per terms of the loan agreement. |
| 12 | Reminders for release of gold after full repayment | Where the borrower(s)/ legal heir(s) has not approached the lender for release of pledged eligible collateral after full repayment or settlement of loan, the lender shall issue periodic reminders to borrower(s)/ legal heir(s) through letters, email or SMS if the email and mobile number are registered with the lender. |
| 13 | Unclaimed gold treatment | The pledged collateral beyond 2 years from the date of full repayment or settlement of loan shall be treated as unclaimed. A report on unclaimed gold and silver collateral shall be put up to the Customer Service Committee or the Board, as the case may be, at half-yearly intervals for a review. |
| 14 | Segregation of CL and IGL | A lender shall disclose in its notes to accounts the amounts and percentage of loans extended against eligible collateral, separately for gold and silver collaterals, for both income generating as well as consumption purposes, to its total loans as per the format prescribed |
Verdict: Overall, the introduction of IGL and consequent freeing up of the LTV is a positive step for the gold loan industry as far as product innovation is concerned and the much needed clarification on the ambiguous industry practices has set the background for a robust growth in the sector, especially in the backdrop of a positive outlook for the gold and in particular for the large gold loan players.