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Informist, Friday, Jun. 6, 2025

MUMBAI – The Reserve Bank of India released directions on lending against gold and silver collateral, including guidelines on the maximum loan-to-value ratio for gold loans of various amounts. The central bank said detailed credit assessment should be undertaken if the total loan amount against eligible collateral is above INR 250,000.

RBI Governor Sanjay Malhotra said earlier in the day that there would not be any requirement of credit appraisal for gold loans of up to INR 250,000. Moreover, in the post-policy press conference, Malhotra had highlighted that some non-banking financial companies and small banks were lending up to 88% of the gold value.

In the directions released Friday, there is a cap of 85% on the loan-to-value ratio for gold loans up to INR 250,000. For gold loans above INR 250,000 but below INR 500,000, the maximum loan-to-value ratio would be 80%, the banking regulator said. Gold loans above INR 500,000 are eligible for a maximum of 75% of the loan-to-value ratio.

The regulations released Friday said the lender should not provide loan against gold, silver, or financial assets, which are backed by primary gold or silver. Examples of such assets are units of exchange-traded funds or units of mutual funds. A lender should also not extend a loan if the ownership of the collateral is doubtful, the directions said.

The tenure of consumption loan, using bullet repayment method, should be capped at 12 months, as per the central bank's directions. The regulator also notified the maximum weight of ornaments for availing gold loans. "The aggregate weight of ornaments pledged for all loans to a borrower shall not exceed 1 kilogram for gold ornaments, and 10 kilograms for silver ornaments," the directions said.

The borrower can't pledge an aggregate of more than 50 grams of gold coins and 500 grams of silver coins to avail the loan, the directions said. For the purpose of valuation, only the intrinsic value of the gold or silver in the collateral should be taken into account, and not any other cost elements, such as precious stones or gems, the directions said.

The central bank also directed standardisation of documentation and procedure regarding loans against gold and silver. A lender should periodically review the adequacy of systems for storage of the eligible collateral, and carry out periodic surprise verification of gold and silver collateral pledged with it, the directions said.

A lender should give adequate notice to the borrowers to repay or settle the loan dues prior to initiating the auction procedure, the directions said. A transparent auction procedure should be followed, which involes issuing advertisements in at least two newspapers to announce the auction to the public. The pledged gold or silver collateral lying with a lender beyond two years from the date of full repayment or settlement of loan should be treated as unclaimed, as per the directions.  End

Reported by Sourabh Kumar

Edited by Tanima Banerjee

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