RBI Increases Gold Loan Limit to 85% of Gold Value
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In a move aimed at helping small borrowers, Reserve Bank of India (RBI) Governor Sanjay Malhotra announced that the Loan-to-Value (LTV) ratio for gold loans will be increased from 75% to 85% for loans up to Rs 2.5 lakh.
This means that if someone pledges gold worth Rs 1 lakh, they will now be able to get a loan of up to Rs 85,000, instead of the earlier limit of Rs 75,000. This step is expected to make it easier for households and small businesses to borrow money using gold as security.
The announcement came after the RBI’s monetary policy meeting, and the final rules for this change are expected to be released either today or by Monday.
Credit Checks Relaxed for Small Loans
To further ease access to gold loans, the RBI also plans to remove credit appraisal requirements for these small-ticket loans. This means that borrowers will not have to go through a lengthy process to prove their creditworthiness, making it faster and simpler to get the loan.
Additionally, monitoring of how the loan amount is used (end-use monitoring) will only be required if the loan falls under Priority Sector Lending (PSL) guidelines.
Finance Ministry’s Recommendations
The RBI’s decision comes after suggestions from the Finance Ministry, which last week asked the central bank to exempt small borrowers (up to Rs 2 lakh) from some of the stricter rules in the draft guidelines for gold loans. The Ministry also proposed that the implementation of these new guidelines be postponed to January 1, 2026.
According to a statement from the Department of Financial Services (DFS) under the guidance of Finance Minister Nirmala Sitharaman, the ministry wants to ensure that small gold loan borrowers are not negatively impacted by the new rules. DFS emphasized that banks and lenders need enough time to prepare for the new changes, especially at the branch level.
The ministry also suggested that borrowers seeking loans under Rs 2 lakh should be excluded from the new rules, to allow faster and smoother loan disbursement.
RBI Reviewing Feedback
The RBI has confirmed that it is currently reviewing the feedback received from various stakeholders and the general public regarding its draft guidelines on gold-backed loans. It assured that all concerns and suggestions will be taken into account before finalizing the new rules.
The feedback from the Finance Ministry was officially sent to the RBI on May 30, and a decision is expected soon.