RBI Bans Lending Against Gold Bullion, Allows Loans on Jewellery to Balance Risk, Liquidity

The Reserve Bank of India (RBI) on Friday prohibited lending against primary gold assets such as gold bullion, citing broader concerns around financial stability and the speculative, non-productive nature of such investments.

However, the central bank clarified that regulated entities (REs) may continue to offer loans backed by gold jewellery, ornaments, or coins, which are considered practical avenues for borrowers seeking short-term financing.

Over time, the RBI has issued a range of prudential and conduct-related guidelines for different categories of lenders, tailored to their distinct risk appetites and institutional mandates. While the core regulatory philosophy remains uniform, the specifics differ to reflect each entity’s unique operational scope.

These measures aim to strike a balance between allowing individuals to access liquidity by leveraging idle gold, while also safeguarding lenders from undue risk. Similar concerns have previously informed regulatory decisions related to lending against silver.

In a parallel move aimed at making credit more accessible, RBI Governor Sanjay Malhotra announced a major easing of norms for non-banking financial companies (NBFCs). The loan-to-value (LTV) ratio for gold loans under ₹2.5 lakh has been raised from 75% to 85%. This gives NBFCs more room to offer higher-value loans against the same amount of gold, improving their ability to compete with banks and better serve small-ticket borrowers.

Investors also cheered for the announcement, sending shares of leading gold financiers like Muthoot Finance, Manappuram Finance, and IIFL Finance up 2-7% in Friday's session.

This revised guideline marks a reversal from earlier draft regulations, which had proposed a uniform LTV cap of 75% for both banks and NBFCs. The new rule is expected to drive loan disbursements, bring in more borrowers, and fuel earnings growth for NBFCs engaged in gold lending.

Governor Malhotra also announced that small-ticket gold loans will now face less red tape. Credit appraisals will not be required for loans below ₹2.5 lakh, and end-use monitoring will apply only to loans under the Priority Sector Lending (PSL) category. These simplifications are designed to reduce paperwork, speed up loan processing, and lighten the compliance burden on lenders.

“There was nothing new in the draft norms on gold loans. We have simply consolidated existing rules. Some regulated entities weren’t adhering to them due to lack of clarity, so we’ve brought everything under one umbrella. The final guidelines will be released today or by Monday morning,” Malhotra said.