Finance Ministry instructs RBI to ensure gold loan rules do not adversely impact small borrowers

By Admin

30 May, 2025

In a move aimed at protecting the interests of small and marginal borrowers, the Ministry of Finance has directed the Reserve Bank of India (RBI) to carefully reassess its draft regulations on gold loans. The Ministry has emphasized that these rules must not adversely impact those who rely on gold loans as a dignified and accessible source of credit.

Concerns from Tamil Nadu CM M.K. Stalin

The directive comes in response to a letter sent by Tamil Nadu Chief Minister M.K. Stalin to Union Finance Minister Nirmala Sitharaman. Mr. Stalin highlighted that small and marginal farmers often do not possess formal land titles or verifiable income documentation, which renders them ineligible for most forms of institutional credit. In such cases, pledging gold is often the only viable means to access timely financial assistance.

Stalin warned that the proposed prohibition could severely impact this critical financial channel, effectively excluding a large segment of genuine and needy borrowers from the formal banking system.

Key Points of RBI’s Draft Guidelines

The draft guidelines, released by the RBI on April 9, include several proposed restrictions:

• A loan-to-value (LTV) ratio cap of 75%, meaning borrowers can only receive loans up to 75% of the gold's value.
  
  

• Proof of ownership of the pledged gold.
  
  

• A cap on the quantity of gold that a single borrower can pledge with one lender.
  
  

These draft regulations sparked concern among stakeholders and triggered widespread discussion on social media platforms.

Ministry of Finance Steps In

Following Mr. Stalin’s intervention and growing public concern, the Ministry of Finance has intervened through the Department of Financial Services (DFS). A recent post on X (formerly Twitter) by the Ministry stated:

“Draft Directions on Lending Against Gold Collateral issued by the @RBI have been examined by @DFS_India under guidance of Union Minister for Finance and Corporate Affairs Smt. @nsitharaman.”

The DFS has provided feedback to the RBI, suggesting that the implementation of the new guidelines be postponed until January 1, 2026, allowing ample time for on-ground systems to adapt. Importantly, the DFS has also recommended exempting gold loans below ₹2 lakh from the proposed requirements to ensure faster and smoother disbursement for small-ticket borrowers.

Looking Ahead

The Ministry expressed hope that the concerns raised by state leaders, stakeholders, and the public would be seriously considered before the RBI finalizes its directions. By asking for an extended timeline and tailored exclusions for small loans, the Finance Ministry seeks to strike a balance between regulatory oversight and financial inclusion.

This development underscores the government’s commitment to protecting the interests of vulnerable borrowers, especially small farmers and lower-income households, who depend on gold loans as a critical financial lifeline.