Gold loan rules: 9 crucial proposals made by RBI in the draft guidelines

Current Context: The Reserve Bank of India (RBI) issued draft guidelines on gold loan rules on May 29, 2025, to enhance transparency, borrower protection, and standardization in lending practices.

Key Changes & Impact:

• Loan-to-Value (LTV) Cap: Borrowers can pledge gold for a loan up to 75% of its value, preventing excessive leverage and reducing financial risks.
• Proof of Ownership Mandatory: Lenders now require purchase receipts or declarations, ensuring authenticity and minimizing fraudulent pledging.
• Gold Purity Certificate: Borrowers will receive a detailed certificate specifying gold weight, purity, deductions, and valuation, boosting transparency.
• Restriction on Eligible Gold: Loans will be sanctioned only on gold jewellery and bank-sold coins (22-carat purity or higher), preventing substandard collateral.
• Loans Against Silver Introduced: For the first time, silver jewellery and coins (925 purity) will be accepted for loans, expanding borrowing options.
• Limits on Gold Collateral Weight: Borrowers can pledge up to 1 kg of ornaments and 50 grams of gold coins, standardizing lending norms.
• Standardized Gold Valuation: Regardless of purity, pledged gold will be valued at 22-carat rates, ensuring uniform pricing across lenders.
• Detailed Loan Agreements Required: Loan contracts must now explicitly state pledged gold details, auction procedures, repayment terms, and fees, enhancing borrower clarity.
• Bullet Repayment Restrictions: Bullet repayment for consumption loans is now capped at 12 months, preventing misuse of flexible repayment options.

Question:

Q.1 What is the new Loan-to-Value (LTV) cap set by the RBI for gold loans?

a) 70%
b) 75%
c) 80%
d) 90%

Answer: b) The RBI has capped the LTV ratio at 75% to prevent excessive borrowing against gold and mitigate financial risks. This ensures borrowers do not over-leverage their assets