The Reserve Bank of India (RBI) has issued draft guidelines to streamline and standardize the procedures for issuing gold loans by banks and non-banking financial companies (NBFCs).These proposals aim to bring uniformity in gold loan practices and enhance transparency for borrowers.According to Sahil Kumar Gaba, National Manager-Gold Loan at Ujjivan Small Finance Bank, the RBI aims to establish standardised regulations for loans secured by gold jewellery and ornaments as collateral. These consistent guidelines would benefit borrowers by providing clarity on loan conditions, regardless of whether they choose to borrow from banks or non-banking financial companies, he says.We take a look at the key changes proposed by the RBI, which include restrictions on eligible collateral, caps on loan amounts, and mandatory procedures for valuation and documentation, as listed in an ET report:Loan-to-value (LTV) ratio capped at 75%The draft caps the LTV ratio at 75% for all gold loans. “The RBI’s draft guidelines propose capping the LTV ratio at 75% for all gold loans. This marks a shift from the earlier relaxation during the Covid-19 pandemic, when the LTV was temporarily raised to 80% for certain segments,” said Sanjiv Bajaj, Joint Chairman and MD of Bajaj Capital.Bajaj also explained, “For banks, there is flexibility to set higher LTV ratios for income-generating loans… For bullet repayment, this LTV must be calculated on the total repayment amount (principal + interest).”Gaba says, “RBI has historically governed gold loan LTV based on the agricultural and non-agricultural purposes of a loan… In essence, the LTV restriction remains unchanged at 75%.”Proof of gold ownership requiredBorrowers must provide ownership proof or a declaration if purchase receipts are unavailable. According to the draft, “Lenders shall not extend loans where ownership of the collateral is doubtful. They shall keep a record of the verification of the ownership of collateral…a suitable document or declaration obtained from the borrower shall be prepared.”Borrowers to receive purity certificateLenders must issue a certificate detailing the purity, weight, deductions, image, and value of gold.Bajaj said, “Borrowers must be provided with a certificate stating the purity, weight, and value of the pledged gold. This move is aimed at ensuring transparency on how the lender assays gold and that it is acceptable to the borrower as well while taking a loan.”Only specified gold eligible for collateralLoans will be allowed only against gold jewellery, ornaments, and bank-sold coins with 22-carat or higher purity.Bajaj noted, “While MMTC-manufactured India Gold Coins may qualify, they must be sold through banks and meet the above criteria to be eligible for gold loan collateral.”Loans against silver also allowedLoans can be taken against silver jewellery, ornaments, and bank-sold silver coins with a minimum 925 purity.Bajaj said, “The draft guidelines issued by the RBI in April 2025 allow loans against silver coins, but with specific conditions. Only specially minted silver coins sold by banks with a minimum purity of 925 are allowed.”Loan limits on collateral weightThe draft proposes a limit of 1 kg of gold ornaments and 50 grams of gold coins per borrower.Gaba clarified, “RBI has proposed defining a maximum exposure limit for each institution… However, the circular defines ‘Eligible Gold Collateral’, ‘Gold Ornaments’ and ‘Gold Jewellery’, but it does not specify any restrictions on individual gold items except gold coins…”Standardized gold valuationGold will be valued based on the price of 22-carat purity, even if the pledged gold is of lower purity.Detailed loan agreements mandatoryLenders must include complete collateral details, auction procedures, notice periods, repayment timelines, and all borrower charges in the loan agreement.Timely release of gold collateralGold must be returned within 7 working days after full repayment. In case of delay, the lender is liable to pay a penalty of Rs 5,000 per day of delay.
