RBI’s Tough Gold Loan Rules May Hurt Small Borrowers, Say Experts

In a move that could significantly reshape the gold lending market, the Reserve Bank of India (RBI) has proposed strict gold loan rules to bring greater uniformity and risk control in gold-backed lending. While the new draft guidelines aim to prevent misuse and reduce financial risk, they may also put added pressure on small and rural borrowers who rely heavily on informal gold assets for quick credit access.

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What Are the New Gold Loan Rules?

The RBI’s draft circular, issued in May 2025, lays down several major changes to how financial institutions can issue loans against gold. Under the new gold loan rules, loans must be granted only against gold jewellery and bank-issued gold coins (not exceeding 50 grams). The proposal explicitly prohibits lending against:

• Gold bars
• Bullion
• Gold ingots
• Primary gold
• Unverified gold items

These items are typically harder to trace and value accurately, increasing the risk of fraud and price manipulation.

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Why Has the RBI Introduced These Changes?

The central bank stated that the intention behind the revised gold loan rules is to enhance transparency and standardize practices across all banks and non-banking financial companies (NBFCs). RBI highlighted a concerning trend where some institutions were extending high-value loans against unverified or untraceable gold forms like bullion and bars. This increases systemic risk, especially during periods of high gold price volatility.

Moreover, recent audits of certain NBFCs and banks revealed inconsistencies in how gold was valued and stored. By limiting acceptable collateral to more traceable and verifiable forms—jewellery and standard gold coins—the RBI hopes to enforce tighter risk management protocols.

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How Will This Impact Small Borrowers?

The most debated aspect of the new gold loan rules is their potential impact on small borrowers, particularly in rural and semi-urban areas. Many small borrowers do not own bank-purchased coins or standardised gold jewellery. Instead, they often possess family heirlooms or traditional forms of gold that may not meet RBI’s new specifications.

Economists and policy experts believe these rules could unintentionally restrict credit access for low-income households and micro-entrepreneurs who rely on gold loans during emergencies or for working capital. In response to these concerns, the government is considering seeking partial exemptions for small-ticket loans—especially those below ₹1 lakh—issued by cooperative banks or rural lenders.

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Government’s Stand on Exemptions

A senior Finance Ministry official indicated that the government is in talks with the RBI to allow more flexibility in applying these gold loan rules to small-value loans. The aim is to strike a balance between financial discipline and social inclusion. While the central bank’s risk concerns are valid, there is a push to ensure that the new rules do not block a vital credit lifeline for those with no access to formal banking products.

If implemented without exemptions, the new rules could push small borrowers towards informal lending channels—defeating the RBI’s objective of financial inclusion and regulatory control.

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Other Key Proposals in the Draft

Beyond restrictions on collateral, the RBI’s draft also proposes:

• Uniform margin requirements across all banks and NBFCs
• Revised norms for gold valuation using transparent pricing methods
• Mandatory third-party audit of gold pledged for loans
• Clear documentation requirements, including PAN for loans above a threshold

These steps aim to reduce default risk, prevent money laundering, and ensure a level playing field across all lending institutions.

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What Happens Next?

The RBI has invited public comments on the draft until mid-June 2025. Industry stakeholders, including banks, NBFCs, microfinance institutions, and civil society organisations, are expected to submit their feedback.

Final guidelines are likely to be issued later this year after evaluating the responses. Experts suggest a phased rollout, starting with urban centres and eventually expanding to rural areas, to avoid disruption to borrowers who heavily depend on gold loans.

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Conclusion

While the RBI’s new gold loan rules are rooted in valid regulatory concerns, their current form could unintentionally burden small and rural borrowers. As the debate continues, all eyes are on whether the central bank will revise the guidelines to offer exemptions or relaxed norms for low-ticket loans. The outcome will shape how millions of Indians access credit using their most trusted asset—gold.