RBI Draft Guidelines on Gold Loans and Co-Lending

April 10, 2025

The Reserve Bank of India (RBI) has introduced comprehensive draft guidelines aimed at regulating gold loans and expanding co-lending arrangements. These changes are designed to harmonise lending practices across financial entities, ensuring greater transparency and risk management in the gold loan sector. The guidelines also seek to enhance access to credit for smaller businesses, thereby boosting economic growth.

Gold Loan Regulations

The RBI’s draft guidelines impose a cap of 75% on the loan-to-value (LTV) ratio for gold loans. This applies to all lenders, including non-banking financial companies (NBFCs). The guidelines require lenders to incorporate gold collateral norms into their credit management policies. This includes setting limits on borrower exposure and ensuring proper end-use of funds. Lenders are prohibited from granting loans against primary gold or financial assets linked to gold. They must also avoid extending loans if collateral ownership is uncertain.

LTV Ratio and Compliance

The LTV ratio must be maintained throughout the loan tenure. If lenders breach this limit, they face an additional 1% provision. The RBI mandates that lenders regularly review their gold loan portfolios and ensure compliance with the established ceilings. This includes differentiating between loans for income-generating and consumption purposes. Furthermore, lenders must assess the weight and purity of gold collateral uniformly across branches.

Co-Lending Arrangements

RBI has expanded co-lending pacts beyond priority sector loans (PSL). This allows banks and NBFCs to collaborate on lending to non-PSL businesses. Co-lending arrangements enable more efficient financing to smaller enterprises, enhancing local growth. The new guidelines permit banks to enter into co-lending agreements without restrictions to PSL loans. This change aims to facilitate access to credit for micro businesses that banks may not typically reach.

Credit Enhancement Norms

The RBI’s draft guidelines also ease credit enhancement requirements for regulated entities. The capital requirement for credit enhancement has been reduced. Additionally, the credit enhancement limit has been increased from 20% to 50% of the bond issue. This allows infrastructure companies to improve their credit ratings and access the bond market more effectively. The proceeds from these enhanced bonds can now be used to repay bank loans, freeing up limits for new projects.

Impact on Financial Sector

The new guidelines are expected to impact the financial sector by improving the clarity and standards of gold loans. They aim to reduce risks associated with gold lending and enhance compliance among lenders. The expansion of co-lending arrangements could lead to increased financing options for small businesses, promoting economic development. Market analysts predict that these changes will lead to a more structured and transparent lending environment.

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