Finance Ministry Instructs RBI to Ensure Gold Loan Rules Do Not Adversely Impact Small Borrowers
The Finance Ministry has directed the Reserve Bank of India (RBI) to carefully craft and implement gold loan regulations that safeguard the interests of small borrowers, who rely heavily on gold loans for emergency and livelihood needs in rural and semi-urban areas.
Context and Recent Developments
In 2025, RBI introduced updated gold loan guidelines aimed at greater transparency, borrower protection, and market stability.
Key regulatory changes include a loan-to-value (LTV) ceiling generally capped at 75%, stricter documentation requirements, mandatory gold purity checks through BIS-certified centers, and compulsory insurance for pledged gold.
However, recognizing the unique needs of small borrowers, RBI has implemented tiered LTV ratios:
Loans up to ₹2.5 lakh (small-ticket loans) allow an LTV of up to 85%,
Loans from ₹2.5 lakh to ₹5 lakh permit up to 80% LTV,
Only loans exceeding ₹5 lakh are capped at 75% LTV.
This tiered approach ensures that borrowers seeking smaller loan amounts against gold are not disproportionately disadvantaged by uniform caps.
Why Safeguarding Small Borrowers Is Important
Gold loans serve as a critical and accessible credit source for millions of low-income households and small businesses who need quick funds without selling their assets.
Rural farmers, traders, and micro-entrepreneurs rely on gold loans to meet urgent financial needs, such as agricultural expenses, education fees, and small business capital.
Overly stringent limits or additional paperwork might reduce credit availability, increase borrowing costs, or exclude vulnerable borrowers. The Finance Ministry wants to prevent such unintended consequences.
Additional Measures to Support Small Borrowers
The RBI encourages the adoption of digital gold loan facilities, allowing borrowers in remote areas to apply and complete documentation online via video KYC.
Flexible repayment tenures (from 3 to 24 months) and waiving foreclosure charges promote affordable and manageable repayment options.
Transparent pricing with clear disclosure of interest rates and charges helps borrowers make informed decisions.
The rules also emphasize priority sector lending benefits for agricultural gold loans, offering lower interest rates and longer tenures.
Finance Ministry’s Role and RBI Coordination
The Finance Ministry has underscored the importance of continuously monitoring the impact of these rules to ensure they do not restrict credit flow or raise barriers for small borrowers.
RBI is guided to balance prudent risk management with financial inclusion goals, promoting responsible lending without compromising access.
Frequently Asked Questions (FAQ)
Q1: What is the latest RBI policy on gold loan LTV ratios for small borrowers?
Small loans up to ₹2.5 lakh have an increased LTV cap of 85%, loans between ₹2.5 and ₹5 lakh have 80%, and only loans above ₹5 lakh have a 75% cap.
Q2: Why does the Finance Ministry care about small borrowers in gold loan policies?
Because small borrowers, especially in rural and semi-urban areas, depend on affordable gold loans for urgent needs and economic activities.
Q3: How do these rules help small borrowers?
They allow higher loan amounts relative to gold value for small loans, easier digital access, flexible repayment, and clear fee disclosure to ensure borrower protection.
Q4: Are there other protections or benefits for agricultural gold loan borrowers?
Yes, agricultural gold loans qualify for priority sector lending, which means lower interest rates and extended repayment options.
Q5: What happens if gold purity or ownership is in question?
RBI mandates loans only against verified purity gold and requires proof or declaration of gold ownership to prevent fraud.
Published on: July 28, 2025
Published by: PAVAN
www.vizzve.com || www.vizzveservices.com
Follow us on social media: Facebook || Linkedin || Instagram
🛡 Powered by Vizzve Financial
RBI-Registered Loan Partner | 10 Lakh+ Customers | ₹600 Cr+ Disbursed