The Finance Ministry has recommended the Reserve Bank of India to exempt gold loans up to Rs 2 lakh from the central bank’s proposed gold loan regulations. This move is expected to offer major relief to small-ticket borrowers, many of whom depend on gold-backed credit to meet emergency or livelihood-related expenses.

The proposal comes in the wake of concerns raised by stakeholders that the new RBI norms could push small borrowers away from formal lending channels and into the unregulated high-interest lending ecosystem. The Finance Ministry, through the Department of Financial Services under Finance Minister Nirmala Sitharaman, conveyed the feedback to RBI via an official communication.

Implementation Deferred to January 2026

Apart from suggesting the exemption for gold loans below Rs 2 lakh, the Finance Ministry has also requested the RBI to defer the implementation of the new guidelines to 1 January 2026. This is expected to give sufficient time to banks and non-banking financial companies to adjust their operational frameworks, ensuring smoother adoption without disrupting access to credit for underserved borrowers.

The DFS has clearly stated the need to consider the realities on the ground, particularly for those at the bottom of the borrowing pyramid. According to sources, the move also comes after political intervention, prompted by industry dissatisfaction with some of the stricter regulatory provisions.

Draft Norms Create Concerns

The RBI’s draft gold loan guidelines, published on 9 April 2025, are aimed at standardising underwriting practices, strengthening collateral management, and introducing a 75 percent loan-to-value cap. Additionally, a 1 percent provisioning requirement has been proposed for loans that exceed the specified LTV limits.

These provisions raised alarms among lenders, especially those catering to low-income and rural segments, as they could reduce the actual loan amount a borrower receives against their gold. Further, it would increase compliance costs for lenders, potentially leading to higher interest rates or rejection of smaller applications.

A senior official at a top gold loan NBFC remarked that around 70 percent of their borrowers avail loans below Rs 2 lakh, and any harsh regulatory change could alienate them from the formal system. Borrowing against gold is often a last resort for this segment, said the official.

Risk of Shift to Informal Lenders

One of the primary concerns behind the Finance Ministry’s recommendation is the possibility that small borrowers could be pushed towards the unorganised gold loan market, where interest rates start from 24 to 25 percent, far higher than the 10 to 18 percent range typically offered by regulated banks and NBFCs.

Amlan Singh, head of operations and customer service at IIFL Finance, noted that borrowers new to formal banking often use gold loans as an entry point. If regulations become too restrictive, this vulnerable population may shift to moneylenders or informal lenders, increasing their financial burden and risk of exploitation.

This point was further echoed by George Alexander Muthoot, Managing Director of Muthoot Finance, who praised the government’s understanding of India’s rural and underserved borrowers. This recommendation reflects a deep empathy for millions who rely on gold-backed credit for essential needs, he said.

Industry Response and Market Reaction

While the RBI had opened its draft for public feedback — which was submitted by banks and NBFCs by 12 May 2025 — the Finance Ministry’s intervention came later, suggesting possible political pushback or pressure from key industry players.

The announcement had a positive impact on the stock market, with Manappuram Finance and IIFL Finance closing 2 to 3 percent higher on the BSE. Muthoot Finance, however, ended 0.5 percent lower, indicating a mixed sentiment depending on business models and exposure to small-ticket borrowers.

Striking a Balance: Regulation vs Inclusion

The RBI’s broader goal is to bring uniformity and reduce risk in the gold loan sector, especially after witnessing massive growth in the segment over the past few years. But the central bank now faces the challenge of balancing regulatory rigour with financial inclusion goals.

The exemption of loans up to Rs 2 lakh and delayed implementation seem to serve both objectives — allowing structured regulation for large-ticket loans while protecting the informal economy’s most vulnerable participants.

India’s gold loan market is dual-layered: while the formal sector includes banks and registered NBFCs, the unorganised sector still commands nearly 75 percent of the market, particularly in rural and semi-urban areas. In such a context, pushing borrowers away from formal lenders could derail years of progress towards financial inclusion.

What Lies Ahead

The RBI is now expected to revise the final gold loan guidelines, incorporating the Finance Ministry’s suggestions. If the exemption is officially accepted, it would legitimise the smaller gold loan segment’s access to credit under a lighter regulatory regime while ensuring stricter controls remain in place for larger loans.

Meanwhile, NBFCs and banks will use the time until January 2026 to strengthen internal systems, prepare for compliance, and enhance borrower communication.

Overall, the development is being viewed as a win-win for borrowers, lenders, and policymakers — one that could ensure India’s gold loan sector remains inclusive, competitive, and well-regulated without being stifled

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