Finance Ministry Advocates for Small Borrowers in Gold Loan Regulations

The Ministry of Finance has urged the Reserve Bank of India to protect small gold loan borrowers from new lending regulations. Emphasizing the importance of small-ticket loans for urgent needs, the ministry proposed that loans below Rs 2 lakh be exempt from the new rules. The RBI is currently reviewing feedback on draft guidelines aimed at standardizing gold-backed loans, which include measures for transparency and borrower protection. The ministry suggests a delay in implementation until January 2026 to ensure effective execution. This move highlights the government's commitment to supporting small borrowers in the financial landscape.

By Narendra Chaudhary May 30, 2025, 11:34 IST

Ministry's Request to RBI

On Friday, the Ministry of Finance communicated its request to the Reserve Bank of India (RBI) to ensure that the interests of small gold loan borrowers remain safeguarded amid the central bank's proposed regulations on gold-backed lending.

In a statement shared on the social media platform X, the ministry indicated that the Draft Directions concerning Lending Against Gold Collateral, issued by the RBI, have been evaluated by the Department of Financial Services (DFS) under the leadership of Union Finance Minister Nirmala Sitharaman.

Concerns for Small Borrowers

The DFS has provided its recommendations to the RBI, urging the central bank to ensure that the new regulations do not hinder small borrowers from accessing gold loans. These individuals often rely on smaller loans to address urgent personal or business financial needs.

Additionally, the finance ministry noted that the implementation of these new guidelines may require adequate time for effective execution at the grassroots level. Consequently, the DFS has proposed that the RBI delay the enforcement of the new directions until January 1, 2026.

Proposed Exemptions

To further support small borrowers, the ministry has suggested that loans under Rs 2 lakh should be exempt from the new requirements. This measure is expected to facilitate quicker and more efficient disbursement of small gold loans.

Stakeholder Feedback and Draft Guidelines

Currently, the RBI is gathering feedback from various stakeholders regarding the draft guidelines. The Finance Ministry anticipates that the RBI will thoroughly consider the concerns and suggestions presented by the public before finalizing the regulations.

The RBI's draft guidelines aim to standardize regulations for loans secured by gold collateral, applicable to banks, cooperative banks, and non-banking financial companies (NBFCs). The guidelines prohibit loans against primary gold or bullion and establish a maximum Loan-to-Value (LTV) ratio of 75% for consumption loans, while limiting bullet repayment loans to a duration of 12 months.

Ensuring Transparency and Protection

The guidelines also impose restrictions on re-pledging and require comprehensive documentation, borrower consent for unannounced audits, and compensation for any delays or loss of collateral. The RBI's objective is to enhance transparency, mitigate risks, and protect borrowers, particularly through more stringent auction norms and mandatory communication with borrowers.