Lending against Gold and Silver collateral

Reserve Bank of India (RBI) has issued directions on lending against the collateral of gold and silver.

To whom are the directions applicable?

The directions are applicable to the following regulated entities (REs) –

• Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, but excluding Payments Banks).
• Primary (Urban) Co-operative Banks (UCBs) & Rural Co-operative Banks (RCBs), i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs).
• Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs).

Which loans are covered under the directions?

The directions shall apply to all loans offered by an RE for the purpose of consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as a collateral security.

What is eligible collateral?

• Eligible collateral means the collateral of jewellery, ornaments or coins made of gold or silver.
• A lender shall not grant any advance or loan against primary gold or silver or financial assets backed by primary gold or silver, e.g., units of Exchange-traded funds (ETFs) or units of Mutual Funds. Primary gold and silver mean gold and silver in any form other than in the form of a jewellery, ornaments and coins.

What are the limits for loan against eligible collateral?

• The aggregate weight of ornaments pledged for all loans to a borrower shall not exceed 1 kilogram for gold ornaments, and 10 kilograms for silver ornaments.
• The aggregate weight of coins pledged for all loans to a borrower shall not exceed 50 grams in case of gold coins, and 500 grams in case of silver coins.
• Tenor of consumption loans in the nature of bullet repayment loans shall be capped at 12 months, which may be renewed as per prescribed directions. Bullet repayment loans means loans where both principal and interest are due for payment at the maturity of the loan.
• Detailed credit assessment, including assessment of borrower’s repayment capacity shall be undertaken in case the total loan amount is above ₹2.5 lakh to a borrower.

How shall the collateral be valued?

• Gold or silver accepted as collateral shall be valued based on the reference price corresponding to its actual purity (caratage). For this purpose, the lower of the following shall be used –
• The average closing price for gold or silver, as the case may be, of that specific purity over the preceding 30 days.
• The closing price for gold or silver, as the case may be, of that specific purity on the preceding day, as published either by the India Bullion and Jewellers Association Ltd. (IBJA) or by a commodity exchange regulated by the Securities and Exchange Board of India (SEBI). 
• If price information for the specific purity is not directly available, the lender shall use the published price available for the nearest available purity and proportionately adjust the weight of the collateral based on its actual purity to arrive at valuation.
• For the purpose of valuation, only the intrinsic value of the gold or silver contained in the collateral shall be reckoned and no other cost elements, such as precious stones or gems, shall be added thereto.

What shall be Loan to Value (LTV) ratio?

• Loan to Value (LTV) ratio on a day means the ratio of the outstanding loan amount to the value of the pledged collateral as on that day. 
• In case of bullet repayment loans, however, the LTV calculation shall take into account the total amount repayable at maturity.
• Maximum LTV ratio in respect of consumption loans shall not exceed the following –

Total consumption loan amount per borrower	Maximum LTV ratio
≤₹2.5 lakh	85%
> ₹2.5 lakh & ≤ ₹5 lakh	80%
> ₹5 lakh	75%

• The prescribed LTV ratio shall be maintained on an ongoing basis throughout the tenor of the loan.

What are the directions on disbursement and servicing of loan?

• Loan disbursals shall be made to the borrower’s account and not to a third-party account.
• Loan servicing, repayment, etc. shall be executed by the borrower directly in the lenders’ bank account without any pass-through account or pool account of any third party.

What are the directions on loan renewal / top-up loan?

• Top-up Loan means an additional loan sanctioned over and above an outstanding loan, during the tenor of the original loan, based on the strength of the collateral already pledged for the existing loan.
• A lender may renew an existing loan or sanction a top-up loan upon a formal request from the borrower and subject to a credit assessment. 
• Renewal or top-up shall be permitted only within the permissible LTV, and provided the loan is classified as standard. 
• Renewal of bullet repayment loan shall be allowed only after payment of accrued interest, if any. 

What is the timeline for release of collateral?

A lender shall release or return the pledged collateral held as security to the borrowers / legal heirs on the same day but in any case, within 7 working days of full repayment or settlement of the loan.

What are the directions on unclaimed collateral?

• The pledged gold or silver collateral lying with a lender beyond 2 years from the date of full repayment or settlement of loan shall be treated as unclaimed. 
• A lender shall periodically undertake special drives to ascertain the whereabouts of the borrowers / legal heirs in respect of such unclaimed gold and silver collateral.
• A report on unclaimed gold and silver collateral shall be put up to the Customer Service Committee or the Board, as the case may be, at half-yearly intervals for a review.

What are the directions on auctioning of collateral?

• A lender shall give adequate notice to the borrowers / legal heirs, as applicable, to repay or settle the loan dues prior to initiating the auction procedure. 
• In case the lender is unable to locate the borrowers / legal heirs despite best efforts and even after issuance of a public notice, it may proceed with the auction, provided that 1 month has lapsed from the date of the public notice.
• Announcement of the auction to the public shall be made by issue of advertisements in at least 2 newspapers, one in the regional language and another in a national daily.
• A lender shall declare a reserve price for the gold and silver collateral at the time of auction, which shall not be less than 90% of its current value. In case auctions fail twice, a reserve price not less than 85% of its current value shall be adopted.
• The first auction shall be conducted physically in the same district in which the lending branch is located. However, in case of failure of first auction, a lender may conduct the auction in an adjoining district or conduct online auction.
• The lender or its related parties shall not participate in the auctions.
• After the auction, the lender shall mandatorily provide full details of the value fetched at the auction and the dues adjusted to the borrowers / legal heirs. 
• The surplus, if any, from the auction of the gold or silver collateral, shall be refunded to the borrowers / legal heirs within 7 working days from the date of receipt of the full auction proceeds. The lender may recover shortfall, if any, as per terms of the loan agreement.

When is borrower entitled to compensation?

• In case of any damage to the pledged collateral by the lender during the tenor of loan, the cost of repair shall be borne by the lender.
• In case of loss of the pledged collateral and / or any loss emanating from deterioration or discrepancy in quantity or purity observed during internal audit or otherwise including at the time of return or auction of collateral, lenders shall suitably compensate the borrowers / legal heirs.
• In case of delay in release of the pledged collateral after full repayment or settlement of loan by the borrower, where reasons for delay are attributable to the lender, the lender shall compensate the borrowers / legal heirs at the rate of ₹5,000 for each day of delay beyond the prescribed timelines.

What are the directions on loan documentation?

• A lender shall not extend a loan where ownership of the collateral is doubtful. A suitable document or declaration shall be obtained from the borrower in all cases to the effect that the borrower is the rightful owner of the collateral. 
• A lender, while accepting the collateral, shall prepare a certificate or e-certificate in duplicate on its letterhead regarding the assay of the collateral and state therein the purity (in terms of carats); gross weight of the collateral pledged; net weight of gold or silver content therein and deductions, if any, relating to weight of stones, lac, alloy, strings, fastenings, etc.; damage, breakage or defects, if any, noticed in the collateral; image of the collateral; and the value of collateral arrived at the time of sanction. One copy of the certificate or e-certificate shall be kept as part of the loan documents and the other copy be given to the borrower under their acknowledgement.
• The loan agreement shall cover the description of the collateral taken as security, value of such collateral, details of auction procedure and the circumstances leading to the auction of the collateral, the notice period which shall be allowed to the borrower for repayment or settlement of loan before the auction is conducted, timelines for release of pledged collateral upon full repayment or settlement of loan, refund of surplus, if any, from the auction of the pledged collateral and other necessary details. 
• All applicable charges payable by the borrower, including those related to assaying, auction, etc., shall be clearly included in the loan agreement and Key Fact Statement (KFS).
• As part of internal audit, a lender shall carry out periodic surprise verification of the gold and silver collateral pledged with it. A clause in the loan agreement shall be included for obtaining consent of the borrowers to carry out surprise verification including assay of the pledged collateral even in their absence during the tenor of the loan. 
• All communication with the borrower, especially, the terms and conditions of the loan, or other important communication which affects the interest of the borrower or the lender, shall be in the language of the region or in a language as chosen by the borrower. For an illiterate borrower, important terms and conditions shall be explained in the presence of a witness, who shall not be an employee of the lender.

What are the disclosure requirements?

• A lender shall disclose in its notes to accounts the amounts and percentage of loans extended against eligible collateral, separately for gold and silver collaterals, for both income generating as well as consumption purposes, to its total loans (as per format in Annex 1).
• A lender shall display on its website the methodology adopted by it for determination of net weight of the gold and silver content of the collateral and the price used to value the gold and silver content of the collateral for determination of LTV ratio.

What are other directions?

• A lender shall ensure presence of the borrowers while assaying the collateral at the time of sanctioning the loan. The deductions relating to stone weight, fastenings, etc., as part of the assaying procedure shall be explained to the borrowers and details incorporated in the certificate to be issued.
• Post pledging, cases involving loss of gold or silver collateral and any deterioration or discrepancy in quantity or purity observed during internal audit or otherwise including at the time of return or auction of collateral shall be recorded and communicated promptly to the borrowers / legal heirs. The process for making reimbursement or compensation as per the policy or SOP shall also be communicated to the borrowers / legal heirs.
• Multiple or frequent sanction of loans against eligible collateral to the same borrower, aggregating to a value in excess of a threshold to be decided by the lender, must be examined closely as part of the transaction monitoring under the anti-money laundering (AML) framework.

What are the directions on re-pledging of collateral?

• A lender shall not –
• Avail loans by re-pledging gold or silver pledged to it by its borrowers.
• Extend loans to other lenders, entities or individuals by accepting gold or silver collateral pledged to such lenders, entities, or individuals by their borrowers as collateral.
• However, it does not preclude a lender from financing another lender against the security of underlying receivables.

From when are the directions applicable?

• The directions shall be complied with as expeditiously as possible but before April 1, 2026. 

References

Reserve Bank of India. (2025, June 06). 'Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/reserve-bank-of-india-lending-against-gold-and-silver-collateral-directions-2025

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