Gold Loan Relief on the Horizon: Finance Ministry Steps in to Support Small Borrowers
In a welcome move for millions of small borrowers across India, the Finance Ministry has asked the Reserve Bank of India (RBI) to exempt gold loans of up to ₹2 lakh from its upcoming stricter regulations. This recommendation aims to protect vulnerable borrowers and promote financial inclusion, especially for those who rely on gold-backed loans during emergencies or for everyday needs.
The Finance Ministry, under Finance Minister Nirmala Sitharaman, shared its concerns through the Department of Financial Services (DFS), asking the RBI to carefully reconsider how the new rules might affect small borrowers. The Ministry has also recommended pushing the implementation date of the new norms to January 1, 2026, giving banks and NBFCs more time to prepare.
Why This Matters
A large chunk of gold loan users — nearly 70% — borrow less than ₹2 lakh. For many, pledging gold is the last resort to access funds quickly, especially in rural and underserved areas. If the new RBI rules had kicked in immediately, there was a real fear that these borrowers would be forced back into the hands of unregulated lenders, where interest rates can soar to 24–25%, compared to 10–18% at regulated institutions like banks and NBFCs.
“This move is a big relief,” said a senior official from a leading NBFC. “People with small gold loans are trying to enter the formal banking system. Stricter norms could have pushed them away again.”
Even IIFL Finance’s operations head Amlan Singh emphasized the same concern: “The smallest borrowers need protection. Without this exemption, they’d be hit hardest.”
What Sparked This?
The RBI’s draft guidelines, released on April 9, 2025, aim to bring consistency to gold loan practices — from underwriting norms to how collateral is managed. But the proposal includes a loan-to-value (LTV) limit of 75% and a 1% provisioning charge for loans that exceed that limit, raising red flags across the financial sector.
Financial institutions had shared their feedback by May 12, but the Finance Ministry’s intervention appears to reflect growing concerns from both the industry and borrowers. It’s also worth noting that the move impacted the stock market — with Manappuram Finance and IIFL Finance gaining 2–3%, while Muthoot Finance dipped slightly by 0.5%.
A Balanced Approach
By proposing a more flexible and phased implementation, the RBI is being encouraged to strike a balance: protecting borrowers while ensuring gold loan businesses remain viable. George Alexander Muthoot, MD of Muthoot Finance, summed it up well:
“This shows a deep understanding of India’s rural and underserved borrowers, who depend on gold-backed loans for their basic needs