Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable to lending against gold and silver collateral.
To whom are the directions applicable?
The directions are applicable to the following Regulated Entities (REs) –
- Commercial Banks
- Small Finance Banks (SFBs)
- Local Area Banks (LABs)
- Regional Rural Banks (RRBs)
- Primary (Urban) Co-operative Banks (UCBs)
- Rural Co-operative Banks –
- State Co-operative Banks (StCBs)
- Central Co-operative Banks (CCBs)
- Non-Banking Financial Companies (NBFCs) for all layers –
- Deposit taking NBFC (NBFC-D)
- NBFC-Investment and Credit Companies (NBFC-ICC)
- NBFC-Factor
- NBFC-Micro Finance Institutions (NBFC-MFI)
- NBFC-Infrastructure Finance Company (NBFC-IFC)
- Infrastructure Debt Fund-NBFC (IDF-NBFC)
- Housing Finance Company (HFC)
To whom are the directions partially applicable?
The prudential regulations are not applicable to ‘NBFCs-Base Layer (NBFC-BL) having customer interface but not availing public funds’, however, conduct-related regulations are applicable to such NBFCs.
To whom are the directions not applicable?
The directions are not applicable to –
- Mortgage Guarantee Company (MGC)
- NBFC-Account Aggregator (NBFC-AA)
- Standalone Primary Dealer (SPD)
- Non-Operative Financial Holding Company (NOFHC)
- NBFC not availing public funds and not having any customer interface
What is eligible collateral?
- Eligible collateral means jewellery, ornaments or coins made of gold or silver.
- A lender shall not grant any advance or loan –
- For purchase of gold in any form including primary gold, ornaments, jewellery, or coins, or for purchase of financial assets backed by gold, e.g., units of exchange-traded funds (ETFs) or units of mutual funds.
- Against primary gold or silver or financial assets backed by primary gold or silver.
- Primary gold and silver mean gold and silver in any form other than in the form of a jewellery, ornaments and coins.
- Commercial Banks (including SFB and RRB) and Tier 3 or 4 UCBs may extend need-based working capital finance to borrowers who use gold or silver as a raw material or as an input in their manufacturing or industrial processing activity, where such gold or silver can also be accepted as security.
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. Bullet repayment loans mean 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. In case of bullet repayment loans, the threshold loan amount for detailed credit assessment shall be the total amount payable at maturity.
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 on that day.
- In case of bullet repayment loans, however, the LTV calculation, and the loan amount, shall take into account the total amount payable 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, except –
- Disbursals covered exclusively under statutory or regulatory mandate (of RBI or of any other regulator).
- Flow of money between lenders for co-lending transactions.
- Disbursals for specific end use, provided the loan is disbursed directly into the bank account of the end-beneficiary.
- Loan servicing, repayment, etc. shall be executed by the borrower directly in the lenders’ 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, 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 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 and / 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 / or 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 1 month has lapsed from the date of the public notice.
- Announcement of the auction to the public shall be made by issuing 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 the 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 a 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, a lender 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 a lender, the lender shall compensate the borrowers / legal heirs at the rate of ₹5,000 for each day of delay beyond the prescribed timeline.
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.
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, the 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.
What are other directions?
- 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.
- 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.
References
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13156&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13140&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Local Area Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13078&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Local Area Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13063&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12957&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12942&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Regional Rural Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13053&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Regional Rural Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13039&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Rural Co-operative Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13002&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12987&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13124&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Small Finance Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13108&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13028&Mode=0
Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13013&Mode=0
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