Fin Min suggests RBI to exclude small-ticket borrowers from draft gold loan norms, rollout from Jan 1
After concerns raised by Tamil Nadu Chief Minister M K Stalin, the Department of Financial Services (DFS) under the Union Ministry of Finance has written to the Reserve Bank of India (RBI) to consider the requirements of small gold loan borrowers and exclude those borrowing below Rs 2 lakh under the draft gold loan norms. The Ministry has also stated that such guidelines will need time to implement at the field level and hence, should be rolled out from January 1, 2026.
'Draft Directions on Lending Against Gold Collateral issued by the @RBI have been examined by @DFS_India under guidance of Union Minister for Finance and Corporate Affairs Smt. @nsitharaman. @DFS_India has given suggestions to the @RBI to ensure that the requirements of the small gold loan borrowers are not adversely affected,' Finance Ministry said in a post on social media platform X (formerly Twitter) on Friday.
Earlier this week, Stalin wrote to Finance Minister Nirmala Sitharaman against the restrictions on gold loans saying that the gold-backed loans serve as a primary source of timely, short-term agricultural credit, especially for small and marginal farmers. 'Small and marginal farmers often lack formal land titles or verifiable income documentation. For such households, pledging household gold has been a viable and dignified route to access institutional credit,' he said.
On Thursday, Stalin had posted on X stating that the RBI has proposed needless restrictions on gold loans, making it harder for poor and middle-class families to access credit with self-respect. 'This is not ornamental gold. It is their shield against life's uncertainties…this is not merely a regulation. It is a blow to their dignity and survival,' he had said.
DFS suggestions to the RBI
DFS has suggested to the RBI that small-ticket borrowers below Rs 2 lakh may be excluded from the requirements of these proposed directions to ensure timely and speedy disbursement of loans for such small-ticket borrowers.
'@RBI is reviewing the feedback received on the Draft guidelines. It is expected that concerns raised by various stakeholders, as well as the feedback received from the public, will be duly considered by the @RBI before finalising the Directions on the same,' the Ministry said.
DFS has also stated that such guidelines will need time to implement at the field level and hence, may be suitable for implementation from January 1, 2026 only.
RBI's new norms
On April 9, the RBI had released draft comprehensive guidelines on gold loans. Under the proposed norms, the RBI has barred lenders from granting any advance against primary gold/ silver or financial assets backed by primary gold/ silver like units of Exchange-traded funds (ETFs) or units of mutual funds. The maximum loan-to-value (LTV) ratio in respect of consumption gold loans should not exceed 75 per cent of the value of gold.
The guidelines said that the eligible gold collateral should not be used concurrently for extending loans for income generating purposes as well as consumption loans. Lenders should not extend loans where ownership of the collateral is doubtful, and they should keep a record of the verification of the ownership of the collateral. Tenor of consumption loans in the nature of bullet repayment loans where both principal and interest become due at maturity should be capped at 12 months, the RBI said.
The RBI's impending framework for gold loans had come amidst a significant surge in gold loan outstanding and non-performing assets (NPAs) in the segment. The RBI's new framework on gold loans aims to regulate the gold loan segment and mitigate potential risks. The sustained rally in gold prices has driven the growth in gold loans, as consumers tap into the rising value of their gold assets. Simultaneously, banks and financial institutions witnessed a substantial increase in gold loan disbursals, leading to a corresponding rise in NPAs. As per RBI data, banks and NBFCs reported a phenomenal growth in gold loan outstanding to Rs 1.78 lakh crore as of January 2025, a surge of 76.9 per cent on a year-on-year basis. RBI data shows that NPAs in gold loans jumped 28.58 per cent in a year and loan outstanding grew by 27.26 per cent. NPAs rose by over Rs 1,500 crore to Rs 6,824 crore as of December 2024 as against Rs 5,307 crore a year ago. Of this, gold loan NPAs of Rs 2,040 crore were reported by commercial banks as of December 2024 from Rs 1,404 crore a year ago.
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After the threshold level, however, the body's defence mechanisms are overwhelmed, and the pollutants are able to cause greater damage to cells, particularly the respiratory systems which are affected first. — When pollutants are inhaled, the body's immune system tends to fight back through the release of Reactive Oxygen Species (ROS), which are chemicals used by immune cells to neutralise foreign substances. When larger concentrations of pollutants are inhaled, greater amounts of ROS are released. — The problem is ROS is damaging for the body's cells as well. Therefore, as a natural counter-defence mechanism, the body produces another set of chemicals, called antioxidants, that protect the cells against ROS. — However, antioxidants are present in small quantities, and take time to build up. So, while they are able to effectively deal with smaller amounts of ROS, they are helpless when ROS is produced in large amounts. — This leads to an imbalance in the body, a situation called oxidative stress, which leaves the internal cells prone to damage from excess ROS. — Air quality standards are framed in terms of their concentration, not toxicity. In India, for example, a PM2.5 concentration level of 40 µg/m³, averaged over a year, is considered safe. On a daily basis, a concentration of 60 µg/m³ is considered safe. — However, the harmful impacts of air pollution on human health depend not just on concentration, but also on toxicity, which takes into account factors like chemical composition of pollutants. Do You Know: — The Air Quality Index (AQI) in India is a standardized system that measures and reports air quality based on the concentration of major air pollutants, including PM10, PM2.5, nitrogen dioxide (NO₂), sulfur dioxide (SO₂), ozone (O₃), carbon monoxide (CO), and ammonia (NH₃). — The AQI is categorized into six levels: Good, Satisfactory, Moderately Polluted, Poor, Very Poor, and Severe, with associated health advisories. This system helps inform the public about local air quality and its potential health effects. — Among the more harmful pollutants are those of a smaller size, such as particulate matter (PM) 2.5, which is an atmospheric particulate matter of a diameter smaller than 2.5 micrometres (or around 3 per cent of the diameter of a human hair). — It causes respiratory problems and reduces visibility. The particles can only be detected with the help of an electron microscope because they are so small. — Due to their size, the PM 2.5 particles can easily bypass the nose and throat and can easily enter the circulatory system. The particles can also lead to chronic diseases such as asthma, heart attack, bronchitis and other respiratory problems. Other Important Articles Covering the same topic: 📍UPSC Issue at a Glance | Air Pollution: 4 Key Questions You Must Know for Prelims and Mains Previous year UPSC Prelims Question Covering similar theme: (6) In the cities of our country, which among the following atmospheric gases are normally considered in calculating the value of Air Quality Index? (UPSC CSE 2016) 1. Carbon dioxide 2. Carbon monoxide 3. Nitrogen dioxide 4. Sulfur dioxide 5. Methane Select the correct answer using the code given below: (a) 1, 2 and 3 only (b) 2, 3 and 4 only (c) 1, 4 and 5 only (d) 1, 2, 3, 4 and 5 Previous year UPSC Mains Question Covering similar theme: Describe the key points of the revised Global Air Quality Guidelines (AQGs) recently released by the World Health Organisation (WHO). How are these different from its last update in 2005? What changes in India's National Clean Air Programme are required to achieve revised standards? (UPSC CSE 2021) Syllabus: Preliminary Examination: Economic and Social Development – Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc Mains Examination: General Studies-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment What's the ongoing story: The Ministry of Statistics and Programme Implementation (MoSPI) on Friday released two interrelated data sets on India's national income and the size of its economy. The first provides an estimate of India's economic growth in the fourth quarter (Q4, January to March) of the last financial year (2024-25 or FY25). The second provides provisional estimates of economic growth for FY25. Key Points to Ponder: — What are GDP and GVA? — What is the relationship between GDP and GVA? — What are the tools used by the Indian government to measure the economy? — What is nominal GDP? — What do you understand by the Compounded Annual Growth Rate (CAGR)? — How is inflation adjusted in the GDP? — What is the difference between nominal GDP and real GDP? — What is the significance of the manufacturing sector for the growth of an economy? — Manufacturing GVA has registered a slower growth rate than even agriculture and allied activities. Analyse. Key Takeaways: — Economic growth is measured using two metrics. Gross Domestic Product (GDP) is calculated by adding up all the expenditures made in the economy, including expenditures by Indians in their individual capacity, expenditures by governments, expenditures by private businesses, etc. This provides a picture of the demand side of the economy. — Gross Value Added (GVA) looks at the supply side. It effectively measures the contribution of each sector of the economy by calculating and summing the value added (or income) at each stage of production. — Both GDP and GVA are linked: they measure the same economic performance but through different routes. Their relationship can be spelled out using the following equation: GDP = (GVA) + (taxes earned by government) — (subsidies provided by government) — What makes the estimates released on Friday 'provisional' is that they will be revised over the next few years. For any financial year, GDP estimates go through several revisions — While the size of the economy uses nominal GDP data, international comparisons of growth rate are done based on the growth rate of real GDP. This is because inflation differs from country to country, and only real GDP provides a genuine understanding about how many actual new goods and services were produced in a particular year. — Manufacturing GVA has registered a slower growth rate (CAGR of 4.04%) than even agriculture and allied activities (4.72%). This explains, to some extent, the high urban — in particular, youth — unemployment in India. It also provides an understanding of why labour has been moving back to Indian villages, and joining agriculture and allied activities. Do You Know: — GDP is the sum of the market value of all the final goods and services produced within the geographical boundaries of a country each year. The value of GDP measured in current prices is called Nominal GDP but it might not be a good measure of production because the increase in value may result from an increase in prices and not output. Nominal GDP, adjusted for price changes, is called Real GDP. Nominal GDP per capita = Nominal GDP/total population Real GDP per capita = Real GDP/total population — India's GDP is estimated by the Central Statistical Office (CSO) using two methods. One is based on economic activity (at factor cost, this does not include taxes), and the second is on expenditure (at market prices, this includes taxes). — Economic activity-based method (at factor cost): This measures GDP based on the cost of production, excluding taxes but including subsidies. — Expenditure-based method (at market prices): This calculates GDP based on total spending in the economy, including taxes but excluding subsidies. — There are two main measures of GDP: Nominal GDP and Real GDP. Nominal GDP: It refers to the value of goods and services evaluated at current market prices without factoring in inflation or deflation. Real GDP: An inflation-adjusted measure that reflects both the value and quantity of goods and services produced by an economy in a given year. Other Important Articles Covering the same topic: 📍Three approaches to measuring GDP and why they matter 📍UPSC Issue at a Glance | From largest economies to understanding GDP: 4 Key Questions You Must Know for Prelims and Mains Previous year UPSC Prelims Question Covering similar theme: (7) Increase in absolute and per capita real GNP do not connote a higher level of economic development, if (UPSC CSE 2018) (a) industrial output fails to keep pace with agricultural output. (b) agricultural output fails to keep pace with industrial output. (c) poverty and unemployment increase. (d) imports grow faster than exports. Previous year UPSC Mains Question Covering similar theme: 'Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period' Give reasons. How far the recent changes in Industrial Policy capable of increasing the industrial growth rate? (UPSC CSE 2017) Subscribe to our UPSC newsletter. 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