RBI tightens gold loan rules: What changes in repayment, valuation, auction

Regulatory changes seek to ensure more discipline, transparency and protection for borrowers

The Reserve Bank of India (RBI) has changed gold loan regulations to improve transparency, protect borrowers, and regulate the market more strictly.

 

No loans for gold purchases

Under the new framework, banks and non-banking financial companies are prohibited from offering loans for the purchase of gold, including jewellery, coins, exchange traded fund (ETFs), or gold-backed funds. Loans cannot be granted against raw gold or silver, or financial products linked to them.

Expanded scope for gold loans

The RBI is broadening gold loan access in certain areas:

 

Working capital loans: Now available to all manufacturers using gold or silver as raw materials, not just jewellers.

 

Wider lender participation: Smaller urban cooperative banks in Tier-III and Tier-IV cities are now allowed to extend bullion-backed loans.

 

Extended repayment for manufacturers: Gold Metal Loans (GMLs) can now have a repayment period of up to 270 days.

Loan to-Value limits and repayment rules

From April 1, 2026, gold loans will follow tiered Loan-to-Value (LTV) ratios:

 

Loans up to Rs 2.5 lakh: 85 per cent of gold value

 

Rs 2.5–Rs 5 lakh: 80 per cent of gold value

 

Above Rs 5 lakh: 75 per cent of gold value

 

Additionally, borrowers of bullet repayment loans must repay both principal and interest within 12 months; earlier, many renewed loans by paying only interest.

 

Faster return of pledged gold

Lenders will be required to return pledged gold within seven working days of loan closure, or the same day, failing which they will be fined Rs 5,000 per day of delay.

 

Transparent valuation and auction processes

 

From April 1, 2026:

 

Gold valuation will be based on the lower of the previous day’s price or a 30-day average, excluding making charges or gems.

 

Loan agreements must clearly state valuation methods, collateral details, repayment terms, and auction rules.

 

Before auctioning pledged gold in case of defaults, borrowers must receive advance notice. Reserve prices will be set at 90 per cent of market value, dropping to 85 per cent if two auctions fail. Surplus from auctions will be returned within seven days.

 

Better borrower protection

All loan terms, valuation details, and notices must be provided in the borrower’s preferred language. For illiterate borrowers, terms must be explained in front of an independent witness, strengthening clarity and fairness in the process.

 

These changes mark a significant tightening of gold loan regulations, ensuring more discipline, transparency, and protection for borrowers while aligning the sector with broader RBI reforms.