Tamil Nadu chief minister MK Stalin has urged finance minister Nirmala Sitharaman to immediately intervene and advise the Reserve Bank of India (RBI) to reconsider its draft gold loan guidelines. He warned that norms could severely disrupt the rural credit delivery system.
In a letter, Stalin expressed concerns over RBI’s draft lending against gold collateral directions, 2025, which seek to prohibit banks from accepting gold as security against agricultural loans of up to ₹2 lakh.
“This proposal is likely to result in serious disruptions to the rural credit delivery system in Tamil Nadu and across many parts of South India, where gold-backed loans serve as a primary source of timely, short-term agricultural credit,” Stalin said. He said the draft guidelines will affect small and marginal farmers, tenant cultivators and those engaged in allied sectors such as dairy, poultry and fisheries.
In April, the RBI released draft guidelines on gold lending, aimed at harmonising the regulatory framework and addressing conduct-related gaps across lenders, including commercial banks, co-operative banks and gold-loan NBFCs. The draft proposes several restrictions, such as including the interest component in the loan-to-value (LTV) calculation, mandating that gold lending be integrated into lenders’ credit and risk management policies, setting single-borrower and sectoral limits for gold loan portfolios, and requiring end-use monitoring of gold loans, among other measures.
Citing implications such as disruption of access to formal credit, Stalin said small and marginal farmers often lack formal land titles or verifiable income documentation. For such households, pledging household gold has been a viable and dignified route to access institutional credit. “The proposed prohibition would directly curtail this essential channel, effectively excluding a large segment of genuine and needy borrowers from the formal financial system.”
Stalin said with formal avenues constrained, rural borrowers may be compelled to turn to informal and unregulated moneylenders, who typically charge exorbitant interest rates. This would expose them to exploitative practices, deepen indebtedness and erode the progress made in formal financial inclusion.
He also highlighted operational challenges for lenders and borrowers. The new requirement for documented assessment of repayment capacity, particularly for small-ticket agricultural loans, is likely to be impractical in the rural context. It may create procedural hurdles, lead to misclassification of credit, attract audit objections, and increase compliance burdens on both banks and borrowers.
“A significant share of priority sector lending (PSLl) credit to the agriculture sector is currently extended through gold loans. Curtailing this mechanism would impair the ability of banks to meet their PSL targets and could lead to a slowdown in overall rural credit expansion,” Stalin said.