June 2025 – In a move aimed at enhancing transparency, curbing misuse, and protecting borrowers, the Reserve Bank of India (RBI) has announced a series of revised guidelines for gold loans. These changes will impact how banks issue loans against gold jewellery and how borrowers manage their repayments.
Here are the eight major changes introduced under the new RBI directive:
1. LTV Ratio Slashed to 70%
The maximum loan-to-value (LTV) ratio for gold loans has been reduced from 75% to 70%. This means borrowers will now receive a smaller loan amount relative to the market value of the pledged gold, which is intended to reduce risk in the banking system.
Borrowers will now be required to explicitly state the purpose of the gold loan. Banks will scrutinize the declared use—whether personal, agricultural, or business-related—to prevent funds from being diverted to speculative or high-risk activities.
The threshold for mandatory Permanent Account Number (PAN) submission has been lowered. Now, gold loans above ₹2 lakh will require borrowers to furnish their PAN details, as part of RBI’s broader effort to strengthen identity verification and compliance.
For gold loans exceeding ₹5 lakh, lenders will conduct stricter Know Your Customer (KYC) checks, including validation of gold ownership and income source. The move is aimed at curbing fraud and ensuring borrower credibility.
The RBI has discouraged the use of bullet repayment schemes—where both principal and interest are paid at maturity. Instead, banks are advised to promote structured Equated Monthly Installment (EMI) options to encourage financial discipline and reduce default risk.
Going forward, banks will only accept BIS-hallmarked gold jewellery for valuation. This measure ensures the purity and authenticity of pledged gold, leading to more accurate loan valuations and fewer disputes.
Lenders must now get gold appraised by an independent valuer approved by the RBI. This will bring greater objectivity and consistency to gold loan assessments, minimizing the scope for overvaluation or underestimation.
In the event of loan default, banks must now follow a uniform, transparent auction process for selling pledged gold. Borrowers will be notified in advance and given a final opportunity to clear dues and reclaim their jewellery before the auction is executed.
