The Reserve Bank of India (RBI) has made several important announcements in the first monetary policy meeting of the current financial year, one of which is related to gold loans. Governor Sanjay Malhotra said that new guidelines will be issued on gold loans.

He said that comprehensive rules will be issued in this regard. The purpose of these rules is to make the guidelines related to gold loans uniform for all banks and financial institutions so that the risks can be handled better.

Why new rules on gold loans?

RBI issued a circular in September 2024 advising banks to re-examine the process and policies of loans being given against gold pledges. During the investigation, RBI found some shortcomings, such as

Low borrowers are not properly investigated.

No monitoring of where the loan is being used

Weak monitoring of loan-to-value ratio

Incorrect risk assessment

RBI has asked all banking institutions to re-examine their policies, procedures, and practices and correct any shortcomings as soon as possible.

These decisions will make the banking system more transparent.

Uniform rules on gold loans: The same rules will be implemented for all institutions on gold loans. This will increase transparency and improve the loan disbursal process.

Strict monitoring of large gold loan portfolios: Where gold loans are increasing very rapidly, RBI has asked to be especially cautious.

Facility of stressed assets securitization (selling through the market): Till now only good loans (standard assets) could be securitized. Now this facility will also be implemented on stressed loans (which are on the verge of sinking).

The scope of co-lending guidelines will increase: Till now the arrangement of co-lending between banks and NBFCs was limited to only priority sectors (such as agriculture, education etc.). Now it will be extended to all types of loans and all regulated institutions.

New funding options for infrastructure financing: The rules related to Partial Credit Enhancement will be changed so that the avenues for raising money for infrastructure projects can be opened further.

The purpose of these decisions of RBI is to make the banking system more transparent, accountable and secure, especially in a period when products like digital and gold loans are expanding rapidly.

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