The Reserve Bank of India (RBI) has issued draft guidelines for banks and non-banking financial companies (NBFCs) to lend gold loans. Let’s discuss the 9 crucial guidelines of the RBI here:

1. Loan-to-Value Ratio :

The first point of the guideline is to lower the loan ratio to 75% of the total gold value. For example, if you have gold worth Rs 10000, you are eligible to get only Rs 7500, which is 75% of its total value.

This rule applies to both agricultural and non-agricultural loans. Earlier, the loan ratio was 80%. It leads to people getting a lower amount than earlier.

2. Proof of gold ownership

The second rule mandates that the borrowers provide proof of ownership of the gold. When they approach gold loans, they have to provide documents for the purchase of the gold. In the case of unavailability of the document, the borrower has to provide a declaration that he is responsible for the ownership of the gold. People have the tendency to keep the gold from their lineage. In this case, where will they go for the proof of purchase?

3. Purity certificate

To ensure the purity of the gold, borrowers have to provide a purity certificate, which is obtained from banks.

As per the guideline, the lender has to provide the certificate or e-certificate mentioning the total weight of the jewel, net weight of the gold and deductions, damages, lac, alloy, and all in detail. The certificate should be signed by both the lender and the borrower. One copy of the certificate shall be kept with the loan document, and the other copy given to the borrower.

The process of obtaining the purity certificate worries the small borrowers who seek loans for emergency purposes.

4. Specified gold eligibility

As per the new regulations, only 22 carats of gold will be taken for a mortgage. If one has 18-carat gold, that will be converted to the value of 22-carat gold.

Gold coins that are purchased only through the bank will be eligible for the loan.

5. Standardizing gold value

Let's assume you have 10 grams of 18 gold, worth Rs 7300/gram. The total value of the gold you have is Rs 73000.

The 22-carat gold value is Rs 8900 / Gram. The total value of 22 carat 10 grams is Rs 8900.

If you approach a lender to borrow a loan for the 18-carat gold of 10 grams, he will convert it into 22-carat gold.

Total value of 18 carat 10 gram gold = Rs 73000

The total value of 22 carats of 10-gram gold = Rs 89000

1 gram 22 carat gold value = Rs 8900

= 73000/8900 = 8.20

10 grams of 18-carat gold, converted into 8.20 grams of 22-carat gold.

You will get a loan of 75% of the 8.2-gram gold value.

6. Loan limit

The draft fixes the limitation for gold loans.

A person can get a loan of up to 1 kg only.

The Indian people buy gold not only for decoration. Gold is like an emergency fund. The loan limit has worried people like small borrowers.

7. Loan against silver

The draft allows people to mortgage silver, and they can get loans for silver, too. Now, silver coins and silver ornaments have also become alternatives to gold. It demands that the silver purity must be 925.

8. Detailed loan agreement

As per the draft, the details of gold value, the weight of the gold, Interest rate, the process of auction, and all the details should be mentioned in the agreement.

9. Timely release of gold collaterals

Both the banks and NBFCs should return the gold within 7 days of the amount received from the borrower. In the case of failure to return the gold, the lender has to pay Rs 5000/day as a penalty. The whole penalty amount will be given to the borrower as compensation.

These rules will drastically affect the small borrowers who lend money for emergency purposes. So, the Ministry of Finance requested the RBI to implement these rules without affecting the small borrowers.

M K Stalin, Tamil Nadu Chief Minister, has written a letter to Finance Minister Nirmala Seetharaman that the new draft would trouble small borrowers' access to the gold loan, and it would affect the poor people drastically.

The finance ministry has also suggested that the loans below Rs.2 lakh will be exempted from the strict rules. Added that, for the proper implementation without affecting the small borrowers, the Finance Ministry asked for time. The new rules will come into action from January 1, 2026.

Why has the RBI tightened the rules for gold loans?

If one wants a gold loan, He would go to the lender, and give the gold that he has to him, He will give the money according to the value of the gold. The process was simple like this. Then, what is the need to tighten the rules? Won’t it affect the emergency borrowers?

In India, a loan that can't be repaid is considered an NPA - Non-Performing Asset. As the gold loan NPA is going up, the RBI wants to control it. As of December 2024, the NPA of the gold loan is Rs 2040 crores. It increased from Rs 1404 crore within a year. Accumulating Financial companies’ NPA of gold loan is Rs 4784 crores. Last year, it was Rs 3904 crores.

Indian people never just see gold as an asset. Apart from that, they have an emotional value to that. When their jewels were auctioned off, they lost their assets. Also, their credit rating is affected.

For lenders, the value of the gold against which the money is provided decreases when the assessment has not been done properly or the loan amount is higher than the gold value. As the auctions are a lengthy process, Lenders have to face the liquidity problem.

RBI aims to implement this set of rules to regulate the gold loan process. But, it should be in a way that small borrowers who lend their jewels for emergency purposes can access the loan easily.

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