RBI’s Draft Gold Loan Regulations 2025
General Studies Paper III: Fiscal Policy, Capital Markets |
Why in News?
In light of the recent sharp rise in gold prices and the increasing number of non-performing gold loans (NPAs), the Reserve Bank of India (RBI) has proposed to tighten gold loan regulations. The goal is to create the same set of rules for all types of lenders.
RBI’s Draft Gold Loan Regulations 2025
- Limit on Loan-to-Value (LTV) Ratio: The maximum loan amount for any gold loan will be capped at 75% of the gold’s value.
- During the pandemic, some institutions used to offer up to 90% loan; now, a uniform limit has been set for all.
- Proof of Gold Ownership Required: Clear proof of ownership of the pledged gold will now be mandatory. If the gold was purchased, showing the receipt will be compulsory.
- For old jewelry that is familial or inherited, a simple declaration form will suffice. This will reduce the chances of pledging stolen or illegal gold.
- Mandatory Gold Purity Certificate: Lenders must give borrowers a certificate showing the gold’s purity, weight, and value. This certificate will be issued in written or digital form, with signatures from both the client and the bank.
- Permission for Specific Types of Gold: Under the new rules, only jewelry, gold ornaments, and special coins sold by banks can be pledged.
- Raw gold, bars, and gold-based financial products like ETFs will not be allowed as loan security.
- Silver to Become Loan Collateral: Silver can now be used as security for loans under the new draft rules. You may use silver ornaments or 92.5% pure bank-issued silver coins as collateral.
- Silver bars, slabs, and ETFs are not allowed for loan security.
- Limit on Coins and Ornaments: According to the proposed rules, an individual can pledge a maximum of 1 kilogram of ornaments and 50 grams of special bank-issued coins. This provision is introduced to limit the lenders’ risk and prevent excessively large loans.
- Uniform Valuation Methodology: All lenders will value gold according to the standard value of 22-carat gold. 18-carat gold will be valued by adjusting it to a 22-carat standard. Silver will be valued using the market rate of 99.9% purity as a benchmark.
- Detailed Loan Agreement: A written agreement must include all key details of the gold loan. This will include information about the gold, the pledging process, auction procedures in case of default, fees, and the time for returning the jewelry upon loan repayment.
- Return of Jewelry on Loan Repayment: If the customer has fully repaid their loan, the lender must return the jewelry within 7 working days. If the lender causes a delay, they must pay ₹5,000 daily as a penalty to the borrower.
Why is RBI changing Gold Loan Regulations?
- Rapid Rise in Gold Prices: Lately, 24-carat gold touched ₹95,760 per 10 grams, while 22-carat gold hit ₹87,780. This significant increase has prompted common citizens to pledge gold for loans to meet their needs.
- NPA Crisis: As the number of people taking loans against gold increased, so did the instances of loan defaults. According to an RBI report, the total NPAs of gold loan NBFC companies have reached ₹4,784 crore, which is significantly higher than ₹3,904 crore in the previous year.
- Loss for the Borrower: Often, when a borrower is unable to repay a gold loan, their pledged jewelry is auctioned. This not only damages their credit rating but also causes them to lose their valuable and emotionally attached ornaments.
- Lack of Guidelines: Until now, there was no uniform and clear policy on gold loans. Each bank or NBFC set its terms as per its convenience, leading to the disregard of borrowers’ rights. This is why the RBI has now felt the need to implement strict and transparent rules in this sector.
Benefits and Limitations of RBI’s New Gold Loan Regulations
- Benefits
- Transparency: The new rules mandate a gold purity certificate and a clear loan agreement. This ensures complete information about gold quality and all loan terms are provided upfront. This will not only eliminate confusion but also strengthen the foundation of trust between the lender and the borrower.
- Comparison of Loan Offers: Now, whether you take a loan from a large bank or a small NBFC, the basic structure of the rules will remain the same. This means the Loan-to-Value (LTV) ratio, pledging rules, and other terms will be standardized. This change will make it easier for borrowers to compare loan offers, allowing them to choose the right option based on interest rates and service quality.
- Protection of Property: The new draft explicitly states that your gold must be returned within 7 days of loan repayment. This gives the borrower the assurance that they will not face any struggle even after the loan is settled.
- Limitations
- Limited Loan Amount: The new rules cap the loan amount to 75% of the gold’s value, reducing how much borrowers can get. All previous exemptions have been removed, which may result in a lower loan amount than before.
- Strict Eligibility: Now, only gold that is standardized and certified will be considered pledgeable. If someone has gold bars, coins separate from jewelry, or raw gold, they will not receive a loan against it.
- Proof of Ownership: The new rules require you to prove that the pledged gold belongs to you. Although a written declaration is permitted, it may be difficult for people who have inherited or received jewelry as a gift to show a receipt or proof of ownership.
Loan-to-Value (LTV) Ratio
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