Planning a Gold Loan? Here’s How RBI’s Draft Guidelines May Impact You

If you’re thinking about taking a loan against your gold jewellery, it’s important to pay attention to the Reserve Bank of India’s (RBI) recently issued Draft Guidelines on Lending Against Gold Collateral, 2025. These proposed rules, once finalized, could significantly change how banks and non-banking financial companies (NBFCs) offer gold loans and how easily borrowers can access them.

India’s gold loan market has grown rapidly, especially among low- and middle-income households who use gold as a convenient way to raise funds during emergencies, for education, weddings, or small business needs. Recognizing this, the RBI has stepped in to create a uniform and transparent regulatory framework to protect borrowers and standardize practices across the financial sector.

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Here’s a deep dive into what’s being proposed and how it might affect you.

What Are the Draft Guidelines About?

The RBI’s draft directions aim to:

• Harmonize regulations across banks, cooperative banks, and NBFCs
• Ensure fair treatment and protection of borrowers
• Standardize procedures for assessing, valuing, and managing gold collateral
• Tighten risk management to prevent misuse or overexposure

These guidelines apply to all regulated entities (REs), including:

• Scheduled Commercial Banks (SCBs)
• Urban and Rural Cooperative Banks
• NBFCs, including Housing Finance Companies

Key Provisions Borrowers Should Know

1. Loan-to-Value (LTV) Capped at 75%

The amount you can borrow will be capped at 75% of the value of your gold. So if your gold is valued at Rs. 1 lakh, you can borrow up to Rs. 75,000. This limit applies to both regular repayment and bullet repayment loans (where repayment happens in one go at the end).

2. Stricter Rules for Bullet Loans

For consumption-related loans, bullet repayment is only allowed if:

• The loan amount is less than Rs. 5 lakh
• The loan tenure is 12 months or less

This rule is meant to reduce risk and ensure quicker recovery of dues.

3. Mandatory Ownership Declaration

If you don’t have a bill or receipt for your gold, you must sign a declaration of ownership. This is to prevent fraud and ensure the gold being pledged is lawfully owned.

4. Gold Must Be Valued in Your Presence

The lender must:

• Weigh and test the gold in your presence
• Issue a signed certificate showing weight, purity, and a photo of the jewellery

This ensures transparency and protects against disputes later.

5. Storage and Handling of Your Gold

• Gold must be stored in secure vaults by the lender.
• It can only be handled by lender staff, not third parties.
• After you repay the loan, your gold must be returned within 7 working days. Any delay means the lender has to pay Rs. 5,000 per day as compensation.

What Can’t Be Used as Collateral?

The draft rules prohibit loans against:

• Gold bars or bullion
• Gold ETFs, bonds, or dematerialized forms
• Silver, unless already permitted
• Gold not owned by the borrower

Only gold jewellery and 22-carat or higher gold coins (sold by banks) are eligible.

Auction and Default Protocols

If a borrower defaults:

• The gold must be auctioned transparently, with newspaper notice.
• The reserve price must be at least 90% of the market value.
• Any excess from the auction (after recovering dues) must be refunded to the borrower within 7 days.

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Documentation and Disclosure

Lenders must issue:

• A loan sanction letter with full details of the gold pledged
• A signed certificate of the gold’s characteristics
• All communication in the borrower’s preferred language

This ensures that the borrower is fully aware of the loan terms and asset handling.

Borrower-Friendly Features

These draft guidelines aim to ensure:

• Secure handling and return of gold
• Clear accountability for delays
• Protection against under-valuation or improper auction
• Standard procedures across banks and NBFCs

What This Means for You

If you're planning a gold loan:

• Expect more documentation and formalities compared to earlier
• Small loans (under Rs. 2 lakh) may be kept simpler if the Finance Ministry’s suggestions are accepted
• Ensure transparency in how your gold is valued, stored, and returned
• Watch for clear communication and loan terms in writing
• Be aware that bullet loans will have tighter limits and more scrutiny

Implementation Timeline

The RBI is currently reviewing feedback from:

• The public
• Financial institutions
• The Ministry of Finance

The final rules will be issued after this consultation process is complete.

You can read the full draft of RBI’s "Draft Directions on Lending Against Gold Collateral, 2025" here

Finance Ministry’s Suggestions

After reviewing the draft directions, the Department of Financial Services (DFS) under the Ministry of Finance, guided by Union Finance Minister Nirmala Sitharaman, has recommended:

1. Exclusion of Small Borrowers: Loans below Rs. 2 lakh should be exempted from the more stringent procedural requirements. This is to ensure that small-ticket borrowers—often those in rural areas or facing urgent needs can still access loans quickly and without delay.
2. Deferred Implementation:
   The rollout of these guidelines should be pushed to January 1, 2026, giving banks and NBFCs time to upgrade systems, train staff, and implement the new processes smoothly across branches.

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These suggestions aim to strike a balance between regulatory rigor and financial inclusion, especially for low-income households that depend on gold loans as a primary source of credit.

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