RBI releases draft directions on lending against gold collateral

The Reserve Bank of India (RBI) has issued draft guidelines to enhance regulatory oversight and bring uniformity in lending practices involving gold as collateral. The proposed directions aim to establish a harmonised framework applicable across all regulated entities (REs), address concerns around existing lending practices, and strengthen conduct-related aspects of gold loan operations.

According to the draft, lenders will be required to align their credit and risk management policies with specific norms for gold-backed lending. They must also put in place systems to periodically monitor the end-use of funds disbursed under such loans, ensuring transparency and accountability.

The draft also outlines that gold loan renewals and top-ups will be allowed only if the existing loan is classified as a standard asset. Additionally, lending institutions will be prohibited from granting loans against re-pledged gold collateral, thereby curbing the risk of multiple loans being secured against the same asset.

 

The maximum Loan-to-Value (LTV) ratio remains capped at 75%. However, the draft proposes stricter valuation guidelines and enhanced controls on bullet repayment loans, which are seen as carrying higher repayment risks.

These measures come in response to growing concerns over asset quality and operational gaps in gold loan portfolios, especially within the NBFC sector. The RBI has invited comments and feedback on the draft guidelines from stakeholders and the public, with the consultation window open until 12 May 2025.

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