The Reserve Bank of India has issued a draft regulatory framework aimed at standardising the rules for lending against gold jewellery and ornaments. This move comes shortly after a cut in the repo rate and reflects a broader effort to streamline credit operations across financial institutions.

The draft seeks to bring uniformity across banks, Non-Banking Finance Companies, Housing Finance Companies, co-operative banks, and regional rural banks engaged in gold-backed lending. 

RBI Governor Sanjay Malhotra, in a press briefing following the monetary policy announcement, clarified that the guidelines are meant to rationalise and not restrict gold loan practices. He explained that the conduct-related rules earlier applicable to NBFCs would now extend to banks as well.

Under the proposed rules, lending institutions must incorporate gold loan provisions into their credit and risk management policies. These policies should define exposure limits for individual borrowers and sectors. Lenders are also required to establish clear procedures for valuing gold and verifying its purity, and they must monitor how the loan amount is used.

All loans must be sanctioned based on the borrower’s repayment capacity. Institutions will need to carry out credit appraisals and maintain records for all such assessments. Additionally, periodic monitoring of loan usage is mandatory, with proper documentation. Renewals or top-up loans will be permitted only if the current loan is classified as standard and meets the required loan-to-value ratio.

Certain lending restrictions are part of the framework. Loans cannot be granted against primary gold or silver, nor against financial instruments backed by these metals. Borrowers are not allowed to take concurrent loans for both consumption and income-generating purposes. Lenders must also ensure that gold under disputed ownership or already pledged elsewhere is not accepted.

The draft also sets clear caps. Bullet repayment loans taken for consumption purposes must be repaid within 12 months. Co-operative banks and RRBs may issue such loans only up to ₹500,000 per borrower. For loans secured by gold ornaments and coins, the total pledged gold must not exceed 1 kilogram per borrower. The weight of gold or silver coins should not exceed 50 grams. Only specially minted coins of 22 carats or higher sold by banks will be accepted; coins issued by other entities are not eligible