RBI 2025 Draft Guidelines on Gold Loans: Key Changes for Borrowers & NBFCs

India’s love for gold has always extended beyond ornaments and traditions. With millions pledging jewellery for quick cash, gold loans have grown into a critical source of short-term liquidity. But as practices among banks and NBFCs began diverging, the Reserve Bank of India (RBI) has stepped in with draft guidelines (April 2025) to bring uniformity, safety and transparency across the board.

Let’s decode the key changes and what they mean for you as a borrower and financial institution.

Why RBI Felt the Need for Change

The Reserve Bank of India’s draft guidelines for lending against gold collateral are not just routine updates; they represent a complete overhaul of how gold loans are regulated in India. This shift follows years of rapid growth in the gold loan segment, especially among non-banking finance companies (NBFCs) and cooperative lenders.

Here’s why the RBI saw an urgent need for reform:

1. Lack of Uniformity Across Lenders

Different categories of lenders, from commercial banks to NBFCs to cooperative banks, followed fragmented and often inconsistent policies on gold loan disbursal, valuation and recovery. This lack of standardisation often led to borrower confusion and regulatory loopholes.

2. Weak Collateral Assessment Practices

Many lenders were accepting gold collateral without rigorous verification of purity, ownership, or value. This opened the door to mispricing, inflated valuations, and higher exposure risk for lenders. RBI observed that assaying procedures were neither standardised nor transparent, leaving borrowers vulnerable and eroding trust.

3. Overuse of Bullet Repayment Loans

Loans that allow repayment of principal and interest at the end of the term, often called bullet repayment loans, saw a surge, particularly among NBFCs. While convenient for borrowers, they carry a higher risk of default, especially when borrowers repeatedly roll over loans without a clear repayment plan. The guidelines now cap bullet repayment loan amounts and tenure, especially for consumption purposes.

4. Unsustainable Lending to Vulnerable Borrowers

Low-income borrowers were increasingly overleveraged, taking gold loans beyond their repayment capacity due to lenient credit appraisals and aggressive marketing. In many cases, borrowers lost their pledged gold through auctions triggered by minor delays or interest defaults.

The RBI aims to bring borrower protection to the forefront, ensuring that gold-backed loans remain a tool of empowerment, not entrapment.

5. NBFCs’ Overexposure to Gold Loans

Some NBFCs had built excessively large portfolios of gold loans, making them vulnerable to fluctuations in gold prices and market sentiment. The RBI aims to mitigate concentration risk by asking lenders to impose internal caps on the share of gold loans in their total loan portfolios.

“These changes are intended to create a gold loan market that is transparent, responsible and borrower-centric, while also reducing systemic risks in the financial sector.”

Key Changes in the Gold Loan Regulations You Must Know

1. Uniform Rules for All Lenders

Earlier, different lenders followed different standards. Now, the new guidelines bring all lenders, banks, NBFCs, and co-operative institutions under one harmonised rulebook, ensuring uniform practices, particularly in valuation, documentation, auctions and customer disclosures. At the same time, it eliminates confusion and enhances borrower protection.

2. Clear Separation of Consumption and Income-Generating Loans

RBI now mandates that gold loans be classified as either:

• Consumption Loans (for emergencies, personal needs) with Loan to Value (LTV) Ratio capping of 75%

• Income-Generating Loans (for business, farming, asset creation)

Additionally, documentation of usage is now mandatory, especially for higher-ticket loans, to ensure that gold loans are not misused for speculative purposes.

3. Cap on Bullet Repayment Loans

Bullet loans (loans where the full amount is repaid at the end) are now tightly regulated:

• Tenure capped at 12 months (For consumption Loan)

• ₹5 lakh limit for cooperative banks and RRBs (Regional Rural Banks)

• Renewals or top-ups only after interest repayment
  
  

This protects borrowers from a debt trap, especially when they struggle to repay large sums at maturity, and ensures better credit discipline among borrowers.

4. Assaying and Valuation Standards

Lenders must follow a uniform process for gold valuation, using:

• Average closing price of 22-carat gold for the past 30 days OR

• Closing price of the previous day

• Gold must be assayed in the presence of the borrower

Only the intrinsic value of gold is to be considered. Stones or fastenings must be excluded. Borrowers must be present during the valuation and be issued a signed certificate.

5. Strict Ownership Checks and Limits

To curb misuse, the RBI has now set the following limits:

• Max 1kg of gold/silver ornaments per borrower

• Gold coins: not more than 50 grams and must be bank-issued

• Loans against primary gold bullion or repledged gold are disallowed

• Borrowers must prove ownership, even if invoices are missing
  
  

This limits high-value pledges that might bypass scrutiny.

6. Auction Process Made Transparent

To prevent misuse during gold auctions:

• A public notice must be published in at least two newspapers

• The reserve price must be at least 90% of the current gold value

• Surplus after the auction must be refunded within 7 working days

• Group companies of lenders are barred from participating in the auction
  
  

These measures protect borrowers from underhanded practices and ensure fair market discovery.

7. Compensation for Delay or Loss

• Lenders must return the gold within 7 days of repayment or pay ₹5,000 per day as compensation.

• Also, if there are any Damages or lossess the gold lender must compensate as per the policy

This introduces accountability and ensures lenders handle gold with care.

Does This Make It Easier or Harder to Get a Gold Loan?

Well! It’s a mixed bag.

For genuine borrowers, especially those pledging their own jewellery for emergencies or business needs, the new RBI guidelines make gold loans safer, more transparent and borrower-friendly. Here's how:

• Lenders must now provide a standardised valuation certificate detailing gold purity, deductions and final weight, reducing the chances of undervaluation.

• Borrowers are protected from surprise auctions and have the right to receive timely notifications in a language they understand.

• The maximum Loan-to-Value (LTV) ratio is now strictly defined, so borrowers know exactly how much loan they can get upfront.

However, it's not without trade-offs.

The process will take longer, especially in smaller branches or with NBFCs, as they now need to:

• Employ qualified gold assayers

• Verify ownership of pledged gold.

• Follow strict KYC and audit requirements.

Although access is not denied, speed will be slightly reduced. Lenders can no longer operate loosely structured gold loan schemes with aggressive rollovers or quick top-ups.

This hits frequent users of bullet repayment loans the hardest. If a borrower has:

●        Multiple loans across branches

●        Outstanding interest dues

●        No clear income proof for repayment

Then lenders are likely to tighten their risk checks. Bullet loans are now capped in tenure and amount for many borrowers, and renewals are blocked if the LTV threshold is breached at maturity.

In essence:

• Easier for responsible borrowers who need gold loans with fair valuation and legal safeguards.

• Harder for casual borrowers looking for quick cash without repayment visibility or proper documentation.

The overall shift is toward formalisation, which is good for long-term borrower trust and stability of the gold loan ecosystem.

Impact on Banks and NBFCs: More Oversight, Better Risk Control

The RBI’s new gold loan guidelines bring stricter compliance and risk controls for both banks and NBFCs, aiming to create a fair and transparent credit ecosystem.

For Banks

●      Stricter LTV and Provisioning Rules: Banks must now maintain LTV ratios within prescribed limits at all times. A breach lasting over 30 days triggers an additional 1% provisioning.

●      Cash Disbursal Restrictions and Audit Trails: Disbursals are encouraged through bank transfers to improve transparency. Cash payouts must adhere to strict tax and Know Your Customer (KYC) regulations.

●      Bullet Loan Limitations: Bullet repayment loans for consumption are capped at 12 months, with stricter conditions for renewal or top-ups.

For NBFCs

●      Uniform LTV Cap at 75%: All gold loans, including those for business purposes, must now follow a 75% LTV ceiling, removing earlier flexibility.

●      Greater Regulatory Scrutiny: NBFCs must standardise valuation processes, provide purity certificates, and ensure all communication is borrower-friendly and transparent.

●      Operational Upgrades Required: Enhanced requirements for storage, gold handling, and auction processes may force smaller NBFCs to invest in compliance infrastructure.

What This Means for the Industry

RBI is closing the gap between banks and NBFCs by enforcing common standards. As a result, only well-governed, tech-savvy lenders will continue to grow aggressively in the gold loan space, driving industry consolidation and improving borrower protection.

Government’s Stance: Protect the Vulnerable, Avoid Overreach

The Government of India has taken a nuanced position on the RBI’s proposed gold loan reforms. As reported by The Hindu, the Ministry of Finance has urged the RBI to ensure that the new regulations do not unintentionally restrict credit access for small and vulnerable borrowers. These borrowers, many of whom rely on gold loans for urgent needs such as medical expenses, school fees, or working capital, form a large part of India’s informal credit ecosystem.

The Finance Ministry has clearly emphasised three critical points:

1. Preserve Financial Inclusion: The Ministry has requested that the RBI ensure the guidelines remain balanced, inclusive, and non-restrictive, especially for lower-income households who may not have formal documentation but still use family gold for short-term liquidity. Regulations must not make loans harder to access for the very people who need them the most.
   
   

2. Avoid Regulatory Overreach: While the RBI is focused on plugging gaps and curbing excessive or unfair practices, the government has advised against an overly rigid framework that may discourage banks and NBFCs from servicing small borrowers altogether.
   
   

3. Implementation Timeline Extended to 2026: Reflecting the complexity of these changes and the need for system readiness, the Ministry has also recommended that the guidelines take effect starting January 1, 2026, giving lenders sufficient time to update their processes, train staff, and rework their product offerings.
   
   

“This measured intervention underscores the government’s dual agenda to enhance borrower protections without disrupting access to credit for India’s financially underserved.”

Gold Loans Enter a New Era of Regulation

The new draft guidelines issued by the RBI in 2025 are not an isolated move. They are the result of a consistent regulatory evolution over the past 3 to 4 years. During this period, the RBI has taken strict supervisory actions against certain lenders in the gold loan segment, particularly those engaged in aggressive collection practices, improper auctions, or non-transparent valuation methods. These new directions are, therefore, part of a broader effort to rein in risk and protect vulnerable borrowers while ensuring that lenders do not misuse the sanctity of gold-backed lending.

With these draft guidelines, RBI is ushering in a more structured, responsible and borrower-friendly gold loan ecosystem. While lenders will need to follow more rigorous processes ranging from standardised valuation and documented procedures to stricter limits on bullet loans, the changes offer significant upside for consumers in the form of fairness, transparency, and accountability.

Gold-backed credit has been growing rapidly in India, especially among low-income and rural households. This regulation ensures that such growth is sustainable, ethical and equitable.

Borrowers now need to be more informed, vigilant and proactive. Know what you're signing. Understand whether your loan is for consumption or income generation. Demand full disclosures on gold purity, valuation and auction rights.

And if you're someone who loves their gold and prefers not to pledge it at all, you still have excellent credit options available.

Instead of parting with your family gold, consider:

●      A personal loan for emergencies or lifestyle needs

●      A business loan to grow your enterprise

●      A loan against property for larger capital requirements

For the best interest rates, higher loan values and verified offers from over 100 lenders, visit www.saarathibazaar.com, your one-stop destination to compare loans and choose what’s right for you. At Saarathi Bazaar, we keep our promise of no spam and only real offers from trusted lending partners.