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The Reserve Bank of India (RBI) has released comprehensive Draft Directions on Lending Against Gold Collateral, 2025 (official notification link). These guidelines aim to harmonise and strengthen the regulatory framework for gold loans across all regulated entities (REs), ensuring borrower protection, lender prudence, and transparency.
Let’s break down the key aspects of the draft guidelines, focusing on the Loan-to-Value (LTV) ratio, ownership and valuation of gold, maximum pledgeable limits, gold purity certification, eligible forms of gold and silver, calculation of loan amount, loan agreements, and the process for release of gold collateral.
1. Loan-to-Value (LTV) Ratio
- Definition: The LTV ratio is the maximum percentage of the gold’s value that can be lent as a loan.
- Policy: Each lender must set LTV ratios in their credit/risk management policy, tailored to their risk appetite.
- Ongoing Compliance: The LTV must be maintained throughout the loan tenure. If breached for over 30 days, the loan attracts an additional 1% provisioning.
- No Renewal on Breach: If the LTV is breached at maturity, the loan cannot be renewed.
- Purpose: This ensures the loan amount remains prudent relative to the gold’s market value, protecting both borrower and lender from gold price volatility.
2. Ownership of Gold
- Clear Ownership Required: Lenders must verify the borrower’s ownership of the gold. If purchase receipts are unavailable, a suitable declaration explaining ownership is mandatory.
- No Loans on Re-pledged Gold: Gold already pledged elsewhere cannot be used for another loan.
- Suspicious Transactions: Pledging must comply with anti-money laundering and suspicious transaction reporting policies.
3. Assessing the Value of Gold
- Valuation Basis: Only the intrinsic value of gold content is considered. Stones, gems, or other embellishments are excluded.
- Purity Standard: Gold is valued at the price of 22 carat gold. If the collateral is of lower purity, it is converted proportionately to 22 carat for valuation.
- Price Source: The lower of:
- The 30-day average closing price of 22 carat gold, or
- The previous day’s closing price,
- As quoted by the India Bullion and Jewellers Association Ltd. or a SEBI-regulated commodity exchange.
- Assaying: Qualified, independent assayers must certify the purity and net weight in the borrower’s presence. Any deductions (for stones, fastenings, etc.) must be explained and documented.
4. Maximum Limit on Pledgeable Gold
- Lender Policy: Each lender must specify maximum limits for gold loans per borrower and sectoral exposure in their policy.
- Bullet Repayment Loans: For cooperative banks and Regional Rural Banks (RRBs), bullet repayment loans (where principal and interest are paid at maturity) are capped at ₹5 lakh per borrower, with a maximum tenure of 12 months.
5. Gold Purity Certification
- Standardised Assaying: Uniform procedures for assaying and certifying gold purity and weight must be followed across all branches.
- Certification: A certificate/e-certificate must detail:
- Purity (carats)
- Gross and net weight
- Deductions for non-gold components
- Any damage/defects
- Image of the collateral
- Value at sanction
- Transparency: The borrower must be present during assaying, and all deductions must be clearly explained.
6. Eligibility of Forms of Gold
- Eligible Collateral: Only gold jewellery, ornaments, and specified coins are accepted.
- Exclusions: Primary gold, gold bullion, and financial assets backed by gold (like ETFs or mutual funds) are not eligible as collateral.
- No Double Pledging: The same gold collateral cannot be used for both income-generating and consumption loans.
7. Eligibility of Silver as Collateral & Limitations
- Permitted Forms: Loans may be extended against silver jewellery, ornaments, and specified silver coins—where allowed by the lender’s policy.
- Valuation: Silver is valued at 999 purity (pure silver) prices.
- Limitations: The same prudential and conduct regulations for gold apply to silver. However, silver’s lower value and higher price volatility may lead to stricter LTV ratios and lower maximum loan amounts.
8. Calculation of Gold Value for Loan Amount
- Intrinsic Value Only: Only the gold content’s value is used to calculate the eligible loan amount.
- Valuation Example: If you pledge 50 grams of 18 carat gold, it is converted to its 22 carat equivalent before applying the LTV ratio.
- LTV Application: If the LTV is set at 75% and your gold’s eligible value is ₹1,00,000, the maximum loan is ₹75,000.
9. Details on Loan Agreement
- Standardised Documentation: Loan agreements must be standardised and include:
- Description and value of gold collateral
- Terms and conditions (interest rate, tenure, repayment schedule)
- LTV ratio and consequences of breach
- Auction procedures in case of default
- Borrower’s consent for surprise audits and assaying
- Language: All communication, especially key terms, must be in the regional language or a language chosen by the borrower. For illiterate borrowers, terms must be explained in the presence of a witness.
10. Release of Gold Collateral
- Timely Return: Upon full repayment or settlement, the gold collateral must be returned within seven working days.
- Verification: At release, the gold is verified against the original certificate for purity and weight.
- Compensation: If the gold is lost or damaged while in the lender’s custody, the lender must compensate the borrower as per policy.
- Auction Process: In case of default, a transparent auction process is mandated, including public notice and a reserve price linked to market value. Any surplus from the auction (after settling dues) must be refunded to the borrower within seven days.
Conclusion
The RBI’s 2025 draft guidelines mark a significant step towards a safer, more transparent, and borrower-friendly gold loan ecosystem. By harmonising rules across all lenders, ensuring rigorous valuation and documentation, and prioritising borrower rights, the RBI aims to protect both consumers and the financial system from risks associated with gold-backed lending.
For borrowers, these rules mean greater clarity, security, and fairness. For lenders, they provide a robust framework to manage risk and standardise practices. As the guidelines move towards finalisation, both borrowers and lenders should familiarise themselves with these directions to make the most of gold loan opportunities in 2025 and beyond.
For the full text and latest updates, refer to the RBI official notification.