RBI eases small business loan rules, expands lending scope against gold

The Reserve Bank of India (RBI) has announced new guidelines for small business loans, giving banks greater flexibility in adjusting the additional interest or spread charged over the loan term, reported Reuters. Previously, banks could revise the spread linked to a borrower’s credit risk only once every three years.

 

Under the new rule, banks may now reduce other spread components earlier than the three-year period to benefit borrowers. Additionally, borrowers will now have the option to switch to a fixed-rate loan at the time of reset.

 

More lending options for businesses using gold

 

In a separate move, the RBI has relaxed norms on lending to businesses that use gold as a raw material. Traditionally, banks were prohibited from offering loans for the purchase of gold and silver, with exceptions made for working capital loans to jewellers.

 

With the revised rules, lenders can now extend working capital loans to any business that relies on gold as a raw material, expanding credit access beyond the jewellery sector.

 

RBI issues new directions to strengthen lending

 

According to a Times of India report, the RBI unveiled seven directions for lenders, three mandatory and four open for consultation.

 

The RBI has expanded the role of smaller urban co-operatives in lending, extending the reach of credit. Capital rules have also been eased, with banks now allowed to use foreign-currency and overseas-rupee bonds as Additional Tier 1 capital, making it easier to access global markets. Credit reporting will become faster, moving from fortnightly to weekly submissions and incorporating unique CKYC identifiers for more accurate and timely data.

 

The RBI has invited feedback on these measures until October 20.