RBI’s Draft Directions on Lending Against Gold Collateral, 2025: A Step Toward Harmonised and Responsible Credit Practices

Introduction

Despite the speculative and non-productive nature of gold, lending against primary gold or gold bullion carries significant macro-prudential implications. Nonetheless, such lending has historically played a vital role in meeting the short-term financing needs of borrowers. Accordingly, the Reserve Bank of India (‘RBI’) has adopted a regulated and restrictive approach to such lending.

On 09.04.2025, the RBI issued its ‘Statement on Developmental and Regulatory Policies’ (‘Statement’), which proposes a series of frameworks for all regulated entities (‘REs’)[i]. The Statement primarily outlines policy measures concerning regulations, payment systems, and fintech. As part of these regulatory initiatives, the RBI reviewed the extant directions governing lending against gold and released draft directions containing comprehensive prudential and conduct-related norms. These directions, titled ‘RBI (Lending Against Gold Collateral) Directions, 2025’ (‘LAGC Directions’)[ii], have been released for stakeholder feedback. Once finalised, they will supersede all existing entity-specific directions on this subject[iii].

Objective and Scope

The objective of the LAGC Directions is to provide borrowers a means to address temporary liquidity constraints by leveraging idle gold jewellery or ornaments, while simultaneously mitigating credit, conduct, and operational risks for lenders. These Directions also reflect the RBI’s broader shift toward a principles-based and harmonized regulatory framework, with a focus on strengthening conduct standards and enhancing consumer protection.

The LAGC Directions apply to all loans extended by REs, including commercial banks, cooperative banks, and non-banking financial companies (‘NBFCs’) – where gold jewellery, ornaments, or specified gold/silver coins constitute the primary collateral. These Directions also apply, mutatis mutandis, to loans secured by silver jewellery, ornaments, and specified silver coins, where permitted.

Previously, separate guidelines existed for NBFCs, such as the 2012 Gold Loan norms[iv] and the RBI Circular for co-operative banks[v]. The LAGC Directions now harmonize regulatory treatment across all types of REs, addressing inconsistencies and closing prudential gaps.

Key Definitions

The LAGC Directions define several key terms, including:

• Bullet Repayment Loans - Loans in which the principal amount is repayable in a lump sum at maturity.

• Consumption Loans - Loans extended for personal purposes such as emergency needs, medical expenses, or purchase of consumer durables, with no direct link to income generation.

• Income Generating Loans - Loans intended for economic activities, such as agricultural credit, business or creation or acquisition of productive assets.

• Primary Gold - Gold in unfinished or semi-finished forms like bullion, bars, slabs, billets, etc., which is not permitted as collateral.

• Loan to Value (‘LTV’) Ratio - Ratio of outstanding loan (including accrued interest) to the value of collateral, based on the relevant reference date.

• Top-up Loan - Additional loan over and above the original loan, secured by the same collateral.

Key Directives

General Conditions Applicable to All Loans Against Eligible Gold Collateral

• Lenders must incorporate norms for lending against gold collateral within their Board-approved credit and risk management policy. This policy should include appropriate single-borrower limits, sectoral exposure limits, mechanisms for monitoring end-use, LTV ratio guidelines, valuation standards, and norms relating to gold purity. The policy must also detail the assaying process and the procedures for auctioning pledged gold. Lenders are required to conduct proper credit appraisal and due diligence in all cases. The sanctioned loan amount must be commensurate with the borrower’s repayment capacity.

• Lenders must establish systems and controls to monitor the end-use of sanctioned loans and retain relevant documentary evidence. Documentary proof of end-use is mandatory for all income-generating loans and for consumption loans exceeding a threshold set by the lender’s policy.

• Advances against primary gold or silver, or against financial assets backed by them (e.g., exchange-traded funds (ETFs) or mutual fund units), are prohibited. Additionally, the same eligible gold collateral cannot be used simultaneously to secure both consumption and income-generating loans, regardless of its value.

• Lenders must impose limits on both the total portfolio of loans secured by eligible gold collateral and the maximum amount lent to a single borrower against such collateral. The tenor for consumption loans is capped at 12 months. In the case of a bullet repayment structure, consumption loans must be repaid in a lump sum and cannot be rolled over without repayment of interest dues. This is especially relevant for loans by co-operative banks and Regional Rural Banks (RRBs), which are permitted to extend bullet repayment consumption loans only up to Rs. 5 lakh per borrower.

• Gold accepted as collateral must be valued based on the price of 22-carat gold. If the purity is lower, it must be converted to its 22-carat equivalent. Only the intrinsic gold value shall be considered; the value of precious stones or other elements must be excluded. Silver collateral shall be valued based on the price of 999 purity silver. The valuation must be based on the lower of the 30-day average closing price or the previous day’s closing price of 22-carat gold, as published by either the Indian Bullion and Jewellers Association (‘IBJA’) or a SEBI-registered commodity exchange.

• The lender’s policy must specify the maximum permissible LTV ratio for various loan categories based on risk assessment. For consumption loans, the LTV ratio must not exceed 75%. For NBFCs, the 75% LTV cap applies to all gold loans, whether for consumption or income-generated purposes. If the LTV breach continues for more than 30 consecutive days, an additional standard asset provisioning of 1% will apply. Normal provisioning can resume only after the LTV is restored and remains compliant for at least 30 consecutive days. Further, if the LTV remains in breach at maturity, the loan cannot be renewed or topped up until full repayment is made.

Income-Generating Loans

• These loans must be classified based on their purpose and should not be categorised merely as gold loans. The loan amount and tenor should be determined by the borrower’s credit requirements and projected cash flows from the underlying economic activity, not merely on the value of the collateral.

• Compliance with the prescribed conditions for income-generating loans is the responsibility of the lender. Non-compliance will result in the loan being treated as a consumption loan. Additionally, lenders must ensure the creation of primary security for such loans whenever applicable and must appraise such loans under existing norms for agricultural or business finance, depending on the economic purpose involved.

Conduct-Related Aspects

• Lenders must implement a standardised procedure to assay the purity and weight of gold collateral. The borrower must be present during the assaying process at the time of loan sanction.

• Any deterioration or discrepancy in the quantity or purity of the collateral, observed during internal audit or at the time of return/auction, must be documented and promptly communicated to the borrower or their legal heirs.

• Lenders must issue a certificate/e-certificate on their letterhead regarding the assay results. This must be signed by both the lender and borrower, with one copy retained in the loan file and the other provided to the borrower.

• Preferential margins and interest rates are to be offered for hallmarked gold collateral, in recognition of the reduced risk associated with verified purity. Further, lenders must avoid misleading advertisements and should not make unrealistic claims about gold loan products.

Collateral Management

• Lenders must ensure that branches offering gold loans are equipped with the necessary infrastructure and secure storage facilities. Branches lacking such facilities are prohibited from sanctioning gold loans.

• The adequacy of gold storage systems must be reviewed periodically. Lenders must conduct staff training and carry out internal audits, including surprise verifications of pledged gold collateral. Borrowers must be informed at the time of loan sanctioning that such verifications, including assaying, may occur during the loan term.

• Upon full repayment or settlement of the loan, lenders must return the gold collateral to the borrower or legal heirs within a maximum of seven working days. Delays attributable to the lender will attract compensation of Rs. 5,000 per day beyond the prescribed period.

• In the event of an auction, lenders must follow a transparent process, including publishing notices in at least two newspapers, one in the regional language and another in a national daily. Adequate notice must be given to the borrower or legal heirs using available communication channels. If, despite best efforts and issuance of a public notice, the borrower or legal heirs cannot be located, the lender may proceed with the auction after one month has elapsed from the date of the public notice.

• The first auction must be conducted physically in the same town or taluka as the lending branch. Lenders, their group entities, and gold valuers or assayers are prohibited from participating in auctions. After the auction, lenders must provide the borrower or legal heirs with full details of the auction proceeds and the adjusted loan dues. Any surplus must be refunded within seven working days from the date of receiving full auction proceeds. Any shortfall may be recovered as per the loan agreement.

Unclaimed Collateral and Compensation

• In the unfortunate event of loss or damage to gold collateral, lenders are required to immediately inform the borrower and initiate the appropriate reimbursement or compensation process in line with their internal policies.

• Pledged gold collateral that remains with lenders for more than two years after full repayment or settlement of the loan shall be classified as unclaimed. In such cases, lenders must undertake periodic special drives to trace and notify the borrowers or legal heirs, and ensure appropriate closure of such accounts. Further, all unclaimed gold collateral must be reviewed half-yearly by the Board or an appropriate committee designated by the lender.

Conclusion

The LAGC Directions aim to establish a robust, principle-based regulatory framework that balances the need for financial inclusion through gold-backed lending with prudential safeguards to protect the interests of both borrowers and lenders. The Directions stress the importance of transparency, risk mitigation, responsible lending practices, and fair treatment of customers.

Earlier, the regulatory approach was fragmented. RBI issued entity-specific circulars, such as those listed at Annex 2 of the LAGC Directions, that lacked uniformity in critical areas like LTV, gold valuation, auction process, and income/consumption loan classification. The LAGC Directions consolidate and harmonise these disparate norms into a single set of directions applicable to all REs – bringing clarity and consistency.

Collectively, these measures are designed to enhance systemic integrity, instil borrower confidence, and ensure that lending against gold collateral is conducted in a secure, equitable, and regulated manner across all eligible financial institutions.

End Notes

[i] Reserve Bank of India. (2025, April 9). Statement on Developmental and Regulatory Policies. Press Release No. 2025-26/63.

[ii] Reserve Bank of India. (2025, April 9) Reserve Bank of India (Lending Against Gold Collateral) Directions, 2025 (Draft).

[iii] As listed under Annex 2 of the Directions in Supra Note 1.

[iv] RBI Circular No. RBI/2013-14/435 dated 08.01.2014.

[v] RBI Circular No. RBI/2015-16/207 dated 15.10.2015.

Related Articles

As part of the same set of draft directions issued by the Reserve Bank of India, the following companion analyses are also available:

• Unifying the Framework & Strengthening Oversight: RBI’s Draft 2025 Directions on Co-Lending Arrangements Explained by Srishty Jaura

• RBI Issues Draft Directions on Non-Fund Based Credit Facilities: Bridging the Regulatory Gap by Nitish Solanki

These articles are part of our ongoing coverage of the RBI’s recent regulatory consultations aimed at building a unified, transparent, and risk-sensitive credit ecosystem.

Authored by Shivangi Bhardwaj, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.