FinMin suggests RBI to give relief for borrowers under ₹2 lakh gold loan

Business Standard

2 days ago

In April, the RBI released draft norms mandating, among other requirements, that borrowers furnish proof of ownership for the gold used as collateral
New Delhi
The Union Finance Ministry has suggested that small-ticket borrowers with gold loans below ₹2 lakh may be excluded from the requirements of the proposed draft Directions on Lending Against Gold Collateral to ensure timely and speedy disbursement of loans.
The Finance Ministry stated that the draft directions issued by the Reserve Bank of India (RBI) were examined by the Department of Financial Services (DFS) under the guidance of Union Finance Minister Nirmala Sitharaman.
DFS has also recommended that the guidelines require sufficient time for implementation at the field level and should therefore be made effective from 1 January 2026.
In April, the RBI released draft norms mandating, among other requirements, that borrowers furnish proof of ownership for the gold used as collateral.
The norms also stated that lenders must keep a record of the verification of ownership. 'In case the original receipts of purchase of gold collateral are not available, a suitable document/declaration obtained from the borrower shall be prepared explaining how the ownership of the collateral has been determined,' the draft added. It further noted that the pledge of gold collateral must comply with the lender's suspicious transaction reporting policy under relevant regulatory directions.
The draft guidelines defined the types of gold eligible for collateral: only gold jewellery, ornaments and specified gold coins qualify. Gold ornaments refer to items meant for adornment of objects, decorative items or utensils made of or manufactured from gold, excluding those that fall under the definition of gold jewellery. These clauses may disadvantage small borrowers, particularly women and individuals in rural areas who typically hold gold in the form of objects.
The RBI is currently 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,' DFS noted, adding that the suggestions have been formally forwarded to the RBI.
The RBI released the draft regulations following a joint supervisory review in April 2025 that uncovered several lapses in gold loan practices. These included inadequate monitoring of loan-to-value (LTV) ratios, flawed risk evaluation methods, misuse of third-party agents and a lack of transparency in auction processes.
In its annual report, the RBI directed lenders to promptly assess and rectify weaknesses in their gold loan operations.
According to the proposed regulations, lenders must maintain an LTV ratio below 75 per cent throughout the tenure of the loan, including the interest component. This revision could reduce disbursements under bullet repayment models from the current 65–68 per cent to approximately 55–60 per cent of the pledged gold's value.
Loans structured with equated monthly instalments (EMIs), where the principal is repaid gradually, may be allowed slightly higher LTVs.
The guidelines also suggest that financial institutions cap the proportion of gold loans in their overall lending portfolios. This cap could be reviewed periodically based on factors such as collection efficiency, portfolio risk and capital strength.
Muhtoot Finance shares were up 7.12% to trade at Rs 2212.85 while IIFL Finance shares were up 2.23% to trade at R 437 a share following the finance ministry comments.