The Reserve Bank has allowed voluntary pledge of gold and silver jewellery as collateral for agriculture and small business loans.
“It is clarified that loans against voluntary pledge of gold and silver as collateral by borrowers, sanctioned by the banks up to the collateral free-limit, as covered under the extant circular/master direction, will not be construed as a violation of the above-mentioned guidelines as regards such collateral,” RBI said in a circular Friday updating the extant directions.
The new pledging norms will be applicable to all commercial banks, regional rural banks, small finance banks and all state and district cooperative banks, the central bank said on Friday in the directions issued to the heads of these lenders.
The revised norms are an update on the circular issued on December 6, 2024 on credit flow to agriculture – collateral free agricultural loans, and also of the master direction dated July 24, 2017 on lending to micro, small & medium enterprises, the RBI said. On June 10, 2025, the RBI had introduced a comprehensive regulatory framework for lending against gold and silver collateral, harmonising the treatment of loans secured by gold and silver collateral across all types of regulated entities, thus ensuring greater prudence, borrower protection, and operational transparency.
The most important change is the capping of the loan-to-value ratio (LTV) at 75% for all lenders. This means that if you put gold jewellery with a collateral value of Rs 100, then the lender can only give a maximum loan amount of Rs 75.
But there is also some flexibility on this based on the size of the loan. For gold loans up to `2.5 lakh, the LTV is 85%, this means borrowers can now borrow a higher percentage of the gold’s value as a loan. For loans up to Rs 2.5–5 lakh, the LTV is 80% and above Rs 5 lakh it is 75% which means if you are taking more than Rs 5 lakh in gold loan, your jewellery will be valued only 75% of the monthly average gold/silver price as eligible for loan. This is introduced to reduce overleveraging, the RBI said.
Also for under Rs 2.5 lakh loan, lenders need not conduct a detailed credit appraisal of the borrower. Historically, RBI’s approach to regulating loans against gold and silver was scattered across numerous circulars issued over decades ranging from 1964 to 2023. These directions varied in application and interpretation depending on the nature of the regulated entity (banks, NBFCs, cooperative banks etc). This fragmented regulatory structure often led to inconsistent practices, conduct-related issues, and supervisory gaps.
