Mumbai [Maharashtra]: The Reserve Bank of India (RBI) has issued amendments to its Lending Against Gold and Silver Collateral Directions, 2025, providing clarity for banks, particularly cooperative banks, engaged in gold-linked businesses. The changes are aimed at restricting speculative lending while facilitating productive economic activity involving gold and silver.
Restriction on gold purchase loans
In the 1st Amendment Directions, 2025, the RBI reiterated that no lender may extend loans for the purchase of gold in any form, including ornaments, jewellery, coins, or financial products backed by gold such as Exchange Traded Funds (ETFs) and mutual fund units. Lending against primary gold or silver for speculative or investment purposes remains strictly prohibited.
The central bank emphasised that these measures are intended to curb speculative borrowing and ensure that gold lending aligns with productive economic activity rather than investment or hoarding.
Exception for industrial and manufacturing purposes
The amendment introduces a key exception benefiting Tier 3 and Tier 4 Urban Cooperative Banks (UCBs). Such UCBs, along with scheduled commercial banks, may now extend need-based working capital loans to borrowers who use gold or silver as raw material in manufacturing or industrial processing activities.
In these cases, banks are also permitted to accept gold or silver as collateral, provided the lending is strictly for productive purposes. The RBI stressed that cooperative banks must take adequate measures to ensure that the borrowers do not use the gold for investment or speculative purposes, limiting the loans strictly to industrial use.
Incorporation of earlier circulars
The amendments also integrate previous RBI circulars issued between 2012 and 2013 that restricted bank financing for gold purchases, streamlining the framework and providing a consolidated guideline for all lenders.
The central bank clarified that these directions will apply to all banks that have already adopted the 2025 Directions, effective from October 1, 2025.
Implications for cooperative banks and borrowers
Analysts believe the move provides significant operational clarity for cooperative banks and small financial institutions, enabling them to extend loans to legitimate gold-based industries without risking regulatory breaches.
This measure is expected to benefit sectors such as jewellery manufacturing, industrial ornaments, electronics, and other industries that rely on gold and silver as essential raw materials, while curbing speculative borrowing that could inflate gold demand and market volatility.
The RBI’s move also underscores its commitment to financial discipline and risk mitigation by ensuring that gold lending serves productive purposes and does not contribute to speculative market activities.
Conclusion
The RBI’s amendment of gold and silver lending norms strikes a balance between curbing speculative borrowing and enabling industrial financing. By allowing UCBs and scheduled banks to extend loans for productive purposes, the central bank has provided both regulatory clarity and practical relief to sectors dependent on precious metals, ensuring economic activity remains the primary focus of such financing.