Loans Against Precious Metals To Follow Standardised RBI Norms From April 1

(MENAFN- KNN India) ** New Delhi, Mar 10 (KNN)** Minister of State for Finance Pankaj Chaudhary informed Parliament that the Reserve Bank of India (RBI) has issued comprehensive directions on lending against gold and silver collateral to standardise norms across regulated financial institutions.

** RBI Issues Unified Framework For Loans Against Precious Metals**

According to the RBI, the guidelines, initially issued on June 6, 2025 and later subsumed under broader Directions on Credit Facilities issued on November 28, 2025, will apply to commercial banks, cooperative banks and non-banking financial companies (NBFCs) and come into effect from April 1, 2026.

Under the revised framework, lenders must undertake detailed credit assessment, including evaluation of the borrower’s repayment capacity, when the total loan amount exceeds Rs 2.5 lakh. For consumption loans of Rs 2.5 lakh or below, the maximum loan-to-value (LTV) ratio has been capped at 85 per cent.

The directions also standardise several operational aspects, including loan documentation, collateral management, compensation norms and auction procedures. In addition, all communication with borrowers must be provided in the local regional language or a language chosen by the borrower.

** Standardised Valuation And Risk Management Norms**

The RBI has also mandated uniform assaying procedures across branches to determine the purity and weight of silver collateral. Valuation must be based on the lower of the 30-day average price or the previous day’s closing price published by the India Bullion and Jewellers Association or a SEBI-regulated commodity exchange, considering only the intrinsic silver content.

The central bank said the guidelines incorporate several features aimed at promoting financial inclusion. These include allowing borrowers to renew bullet repayment loans on payment of accrued interest, and enabling lenders to sanction top-up loans within permissible LTV limits, providing continued access to credit.

Loans backed by precious metals can also be extended for income-generating activities such as farm credit, benefiting rural households and artisans.

The directions further introduce borrower protection measures, including transparent valuation, prior notice before auction, a reserve price floor of 90 percent of the collateral value, and mandatory refund of any surplus realised during auction to the borrower.

** Measures To Promote Financial Inclusion And Borrower Protection**

The RBI noted that risks arising from volatility in precious metal prices are addressed through prescribed LTV limits ranging from 75 to 85 percent.

For bullet repayment loans, LTV must be calculated with reference to the total amount payable at maturity, while loan eligibility must be based on the lower of the 30-day average price or the previous day’s price, helping mitigate risks from sharp price fluctuations.

The central bank also stated that credit-related matters such as interest rates and service charges are largely deregulated and governed by the board-approved policies of regulated entities, subject to applicable regulatory guidelines and loan agreements.

** (KNN Bureau)**

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