After concerns raised by Tamil Nadu Chief Minister M K Stalin, the Department of Financial Services (DFS) under the Union Ministry of Finance has written to the Reserve Bank of India (RBI) to consider the requirements of small gold loan borrowers and exclude those borrowing below Rs 2 lakh under the draft gold loan norms. The Ministry has also stated that such guidelines will need time to implement at the field level and hence, should be rolled out from January 1, 2026.
“Draft Directions on Lending Against Gold Collateral issued by the @RBI have been examined by @DFS_India under guidance of Union Minister for Finance and Corporate Affairs Smt. @nsitharaman. @DFS_India has given suggestions to the @RBI to ensure that the requirements of the small gold loan borrowers are not adversely affected,” Finance Ministry said in a post on social media platform X (formerly Twitter) on Friday.
Earlier this week, Stalin wrote to Finance Minister against the restrictions on gold loans saying that the gold-backed loans serve as a primary source of timely, short-term agricultural credit, especially for small and marginal farmers. “Small and marginal farmers often lack formal land titles or verifiable income documentation. For such households, pledging household gold has been a viable and dignified route to access institutional credit,” he said.
On Thursday, Stalin had posted on X stating that the RBI has proposed needless restrictions on gold loans, making it harder for poor and middle-class families to access credit with self-respect. “This is not ornamental gold. It is their shield against life’s uncertainties…this is not merely a regulation. It is a blow to their dignity and survival,” he had said.
DFS suggestions to the RBI
DFS has suggested to the RBI that small-ticket borrowers below Rs 2 lakh may be excluded from the requirements of these proposed directions to ensure timely and speedy disbursement of loans for such small-ticket borrowers.
“@RBI is reviewing the feedback received on the Draft guidelines. It is expected that concerns raised by various stakeholders, as well as the feedback received from the public, will be duly considered by the @RBI before finalising the Directions on the same,” the Ministry said.
DFS has also stated that such guidelines will need time to implement at the field level and hence, may be suitable for implementation from January 1, 2026 only.
RBI’s new norms
On April 9, the RBI had released draft comprehensive guidelines on gold loans. Under the proposed norms, the RBI has barred lenders from granting any advance against primary gold/ silver or financial assets backed by primary gold/ silver like units of Exchange-traded funds (ETFs) or units of mutual funds. The maximum loan-to-value (LTV) ratio in respect of consumption gold loans should not exceed 75 per cent of the value of gold.
The guidelines said that the eligible gold collateral should not be used concurrently for extending loans for income generating purposes as well as consumption loans. Lenders should not extend loans where ownership of the collateral is doubtful, and they should keep a record of the verification of the ownership of the collateral. Tenor of consumption loans in the nature of bullet repayment loans where both principal and interest become due at maturity should be capped at 12 months, the RBI said.
The RBI’s impending framework for gold loans had come amidst a significant surge in gold loan outstanding and non-performing assets (NPAs) in the segment. The RBI’s new framework on gold loans aims to regulate the gold loan segment and mitigate potential risks. The sustained rally in gold prices has driven the growth in gold loans, as consumers tap into the rising value of their gold assets. Simultaneously, banks and financial institutions witnessed a substantial increase in gold loan disbursals, leading to a corresponding rise in NPAs. As per RBI data, banks and NBFCs reported a phenomenal growth in gold loan outstanding to Rs 1.78 lakh crore as of January 2025, a surge of 76.9 per cent on a year-on-year basis. RBI data shows that NPAs in gold loans jumped 28.58 per cent in a year and loan outstanding grew by 27.26 per cent. NPAs rose by over Rs 1,500 crore to Rs 6,824 crore as of December 2024 as against Rs 5,307 crore a year ago. Of this, gold loan NPAs of Rs 2,040 crore were reported by commercial banks as of December 2024 from Rs 1,404 crore a year ago.
