In 2025, the Reserve Bank of India (RBI) issued comprehensive regulations titled “Lending Against Gold and Silver Collateral Directions”, which have set a new benchmark in responsible lending practices. These directions aim to enhance transparency, safeguard borrower interests, and streamline processes for loans backed by precious metal collateral. Among the most critical parts of these guidelines are the General Conditions Applicable to All Loans against Eligible Collateral. Here’s a closer look at what they entail.
- Structured Credit Policy and Risk Management
RBI mandates that every lender must have a well-defined credit policy, laying out limits for single borrowers and the overall portfolio of loans backed by gold and silver. The policy must specify the maximum Loan-to-Value (LTV) ratio permissible, measures for LTV breaches, and valuation standards for gold and silver purity. Additionally, it must include documentation requirements for loans falling under priority sector lending.
Importantly, any loan above ₹2.5 lakh demands a detailed credit assessment of the borrower’s repayment capacity. This safeguards against over-leveraging and ensures that loans are backed by sound credit judgment.
- Operational Guidelines and Conduct Norms
Lenders are required to frame Standard Operating Procedures (SOPs) that cover various operational aspects—from qualifications of gold/silver assayers to auction procedures and fair compensation in cases of damage or loss of collateral. These SOPs are vital in maintaining customer confidence and ensuring ethical handling of valuable assets.
Furthermore, the presence of the borrower during the assaying process is mandatory, with clear documentation of deductions and purity. Assay certificates, to be issued in duplicate, must reflect full details including the gross/net weight and valuation method.
- LTV Ratio Restrictions
The RBI has established a tiered LTV structure based on the loan size:
- Up to ₹2.5 lakh – 85% LTV
- Between ₹2.5 lakh and ₹5 lakh – 80% LTV
- Above ₹5 lakh – 75% LTV
This graded approach balances access to credit with systemic risk control. The LTV must be maintained throughout the loan term, ensuring the collateral adequately covers the exposure at all times.
- Limitations and Restrictions
Lenders cannot accept primary gold/silver or financial assets linked to them (like ETFs or gold-backed mutual funds) as collateral. Also, loans cannot be extended on pledged gold or silver already held by another lender, nor can such assets be re-pledged. This clause prevents the misuse of pledged metals and strengthens collateral integrity.
In addition, there are strict weight ceilings for ornaments and coins: gold ornaments capped at 1 kg, silver at 10 kg; and gold/silver coins at 50g and 500g respectively.
- Storage, Security, and Release
Lenders must store collateral only in branches equipped with safe vaults and ensure only employees handle it. Surprise audits and borrower-consented verification during the loan period are also mandated.
Upon full repayment, collateral must be returned the same day or within 7 working days, failing which compensation of ₹5,000/day is to be paid. This sets a high standard for service quality and accountability.
Conclusion
The RBI’s 2025 Directions underscore a shift toward more secure, transparent, and borrower-centric gold and silver lending. By enforcing fair valuation, LTV discipline, strict documentation, and customer-friendly procedures, the RBI ensures lenders remain responsible stewards of public trust and valuables. These reforms not only protect the interests of borrowers but also strengthen the credibility of the lending ecosystem in India.
