The Reserve Bank of India (RBI) has issued a clarification that banks can accept voluntary pledges of gold and silver as collateral for agriculture and MSME loans, even if the loans fall within the collateral-free limit. The move, announced on July 11, aims to offer more flexibility without violating existing lending guidelines.
Collateral-free loan limit raised to Rs 2 lakh
This comes months after the RBI raised the collateral-free loan limit for farmers from Rs 1.6 lakh to Rs 2 lakh per borrower in December 2024. The aim was to support farmers in the face of rising inflation and increased input costs so that they can easily take loans for farming and allied activities such as dairy, poultry, and fisheries without providing any collateral or margin money citing rising input costs.
Banks were told to implement the revised limit by January 1, 2025. Th notification was later updated in June.
Gold, silver allowed if offered willingly, No pressure on borrowers: RBI
This means borrowers who are eligible for collateral-free loans can still choose to offer gold or silver as security if they wish to. The RBI underlined that the key condition is voluntariness. It said voluntary pledges will not be considered a breach of rules.
The clarification came in response to doubts about whether accepting gold or silver in such cases would go against RBI’s existing policies for collateral-free lending.
“Loans against voluntary pledge of gold and silver as collateral by borrowers… will not be construed as a violation,” RBI said in the circular. However, the central bank stressed that the pledge must be completely voluntary, with no pressure from lenders.
The clarification addresses industry doubts about whether accepting such (voluntary) collateral would breach the spirit of collateral-free lending.