Summary: The Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025, notified on June 6, 2025, establishes a unified regulatory framework for lending against gold and silver collateral by all regulated entities and prescribes a deadline of April 1, 2026, for implementation. These directions provide a single principle-based regulation, addressing systemic issues in the gold loan sector whilst introducing enhanced customer protection measures, standardised assaying protocols, and transparent collateral management processes to create a more robust and customer-centric ecosystem. As regulated entities gear up to adopt the necessary changes by the prescribed deadline, this paper summarises the key changes and compliances laid down by the directions while specifying the important aspects that lenders need to focus on.
Background
The Reserve Bank of India (“RBI”) has historically restricted lending against primary gold such as gold bullion and raw metals due to prudential concerns and speculative behaviour but permitted regulated entities (“REs”) to lend against the collateral security of gold jewellery and ornaments to meet the short-term financing needs of borrowers. However, there were several supervisory and prudential issues in the gold loan market, as highlighted by the monetary penalties imposed by the RBI on identified REs for inter alia, (i) serious deviations in assaying and certifying purity and net weight of the gold; (ii) sanctioning of loans beyond the prescribed regulatory limit under the bullet repayment scheme; (iii) non-maintenance of loan to value (“LTV”) ratio, etc. To move towards a more principle-based, comprehensive, and harmonised regulatory framework effectively addressing these systemic issues across REs, the RBI issued the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025 on June 6, 2025 (“Directions”).
Applicability
The Directions apply to all loans offered by an RE for consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as security. This includes: (i) Commercial Banks (ii) Primary (Urban) and Rural and Central Co-operative Banks (“UCBs, RCBs, CCBs”), and (iii) Non-Banking Financial Companies (“NBFCs”). REs are required to comply with the Directions as expeditiously as possible, but no later than April 1, 2026. Loans sanctioned prior to the date of adopting these Directions will continue to be governed by the extant guidelines applicable before the issuance of these Directions.
Key Highlights
- Lending Restrictions and Ceilings: Lenders must not provide any advance or loan, (i) for the purchase of gold (in any form) or financial asset backed by gold; or (ii) against any primary gold or silver[1] or financial asset backed by primary gold or silver. However, a commercial bank or a tier 3 or 4 UCB can extend need-based working capital finance against primary gold or silver to borrowers who use gold or silver as an input in their industrial processing activity. Additionally, tenor of consumption loans[2] for bullet repayment has been capped at 12 months, subject to the ability to be renewed. Further, the cumulative quantity of collateral that can be pledged by a single borrower is subject to the following limits:
| Type of Collateral | Aggregate Weight |
| Gold ornaments | 1kg |
| Silver ornaments | 10kg |
| Gold coin | 50gms |
| Silver coin | 500gms |
- Loan to Value Ratio: The RBI has introduced a tiered maximum LTV framework for consumption loans secured against eligible collateral, replacing the previous uniform 75% ceiling, as follows:
- for loans ≤ INR 2.5 lakh, the maximum LTV ratio is 85%;
- for loans > INR 2.5 lakh and ≤ INR 5 lakh, the maximum LTV ratio is 80%; and
- for loans > INR 5 lakh, the maximum LTV ratio is 75%.
The prescribed LTV ratio must be maintained on an ongoing basis throughout the tenor of the loan.
- Assaying and certification: The Directions have established specific safeguards for collateral valuation and assaying, inter alia, including the following:
- Lenders must implement uniform assaying protocols for determining purity and weight (gross and net) of gold and silver collateral, ensuring consistent application across all branches.
- Lenders must, upon accepting the collateral, issue duplicate certificates or e-certificates on their letterhead detailing purity (in carats), gross and net weight, deductions for stones, lac, alloy, strings, fastenings, any damage or defects observed, collateral images, and the determined value at sanction.
- Borrowers must be present during the assaying process when loans are sanctioned, with all deductions for stone weight, fastenings, etc., clearly explained and documented in the certificate.
- Collateral Management: Lenders must ensure that collateral is managed exclusively by the staff at its branches and undertake periodic audit. In the event of default, the collateral must be disposed off through a transparent auction process (initiated post providing adequate notice to the borrower), featuring the newly introduced mechanism of public notices and minimum reserve pricing of 90% of current value, in which the lender or its related party must not participate.
- Disclosure Requirements: Lenders must disclose in its notes to accounts the amounts and percentage of loans extended against eligible collateral, separately for gold and silver collaterals, for both income generating as well as consumption purposes, to its total loans, as per the format prescribed in Annex 1 of the Directions.
- Enhanced Customer Protection: The Directions place significant emphasis on borrower protection and prescribe that:
- Lenders must, upon full repayment or settlement of the loan, release or return the pledged collateral on the same day or within a maximum period of seven working days.
- Any loss or damage to the collateral must be recorded and promptly communicated to the borrower.
- Borrower’s specific consent must be obtained under the loan agreement for surprise verification of the collateral even in their absence.
- Auction of the collateral can be conducted only after a month from the date of public notice, if the lender is unable to locate the borrower despite best efforts.
- All communication with the borrower must be in regional language or such language chosen by the borrower. If a borrower is illiterate, important terms and conditions must be explained in the presence of a witness, who is not the lender’s employee.
- Compensation Framework: Lenders must bear repair costs if the collateral is damaged and provide appropriate compensation if it is lost or deteriorated. For delays in releasing pledged collateral, following full repayment or settlement, attributable to the lender, compensation of INR 5,000 per day beyond the seven working day timeline must be paid to borrowers/ legal heirs.
- Risk Management: For effective AML monitoring, lenders must decide on a threshold for the aggregate loan value that can be extended to a single borrower against eligible collateral. Further multiple loans to a single or group of related borrowers must be strictly supervised, to curb misuse and possible fraud.
- Operational Overhaul: REs will need to undertake a comprehensive review of their existing gold and silver loan portfolios and policies to comply with the Directions. The credit policy of lenders must be assessed to include, inter alia, appropriate single borrower limits and aggregate limits for the portfolio of loans against eligible collateral; maximum LTV ratio permissible for such loans; action to be taken in cases of breach of LTV ratio; valuation standards and norms; measurement specifications for gold and silver purity; and credit risk management framework consistent with the principles of proportionality and ease of access to small ticket loans. Additionally, the loan agreement must clearly cover description and value of collateral, repayment/ settlement notice period, details of auction process, collateral release timelines, surplus refund mechanism and applicable charges. This will require significant investment in policy documentation, staff training, and system upgrades.
- Technology investments: Lenders must clearly display on their websites the methodology adopted to determine the net weight of gold and silver content in eligible collateral, as well as the pricing method used to value such eligible collateral for determining the LTV ratio. Further, REs will need to build secure storage facilities, assaying equipment, and digital systems for certificate generation and tracking.
Conclusion
Through these Directions, the RBI has taken significant steps to consolidate and strengthen guidelines issued over the past 60 years into a unified framework on lending against gold and silver collateral, by moving from an entity-based to an activity-based regulation. The Directions address long-standing concerns around varied lending practices, valuation methodologies, and collateral management whilst providing clarity on permissible and prohibited activities.
Accordingly, REs will need to proactively align their policies, procedures, and systems with the new framework before the April 1, 2026, deadline. Whilst this will require significant operational and technological investments, the revised scheme will ultimately contribute to a more robust, transparent, and customer-centric gold and silver lending ecosystem in India.
[1] “Primary Gold and Primary Silver” means gold and silver in any form other than in the form of a jewellery, ornaments and coins.
[2] “Consumption Loan” means any permissible loan that does not fit the scope of income generating loans which inter alia include loans for the purpose of productive economic activities, such as farm credit, loans for business or commercial purposes, loans for creation or acquisition of productive assets etc.
