By Mahesh Nayak & Prasanta Sahu
The Finance Ministry’s recommendation to the Reserve Bank of India (RBI) to exempt loans up to Rs 2 lakh from its proposed gold loan guidelines is expected to provide a much-needed relief to small borrowers.
The tweet from X (formerly Twitter) stated that the Department of Financial Services (DFS), under the guidance of Finance Minister Nirmala Sitharaman, has examined the draft directions and provided suggestions to the RBI to ensure that the requirements of small gold loan borrowers are not adversely affected. The DFS has also emphasised the need for sufficient time to implement the guidelines at the field level, recommending January 1, 2026, as the implementation date.
This development has surprised banks and non-banking financial companies (NBFCs), which submitted their feedback on the draft guidelines on May 12, 2025.
Industry insiders suggest that political intervention, prompted by industry’s dissatisfaction with the proposed strictures, has contributed to the delay in implementing the new guidelines.
Most of the stock prices reacted positively, with Manappuram Finance and IIFL Finance closing 2-3% higher, while Muthoot Finance ended 0.5% lower on Friday on the BSE.
A senior official from a leading gold loan non-banking financial company (NBFC) welcomed the exemption, noting that 70% of borrowers have loans below Rs 2 lakh and that 70% to 75% of the gold loan market remains unorganised. “For this segment, borrowing against gold is often a last resort.” Amlan Singh, head, operations and customer services at IIFL Finance, said.
He added that the main concerns are small-ticket borrowers that are slowly entering into the formal banking system by taking a gold loan from regulated entities would have been pushed towards unregulated entities offering loans at much higher interest rates.
Unlike banks and NBFCs, which offer gold loans between 10% and 18%, the unorganised market starts offering gold loans at 24-25%.
The RBI’s draft guidelines on gold loans, issued on April 9, aim to standardise gold loan regulations, improve underwriting, and enhance collateral management. However, concerns have been raised about the proposed 75% loan-to-value (LTV) limit, which could restrict the amount of loan a borrower can get against the value of their gold, and the 1% provisioning charge for loans exceeding LTV limits, which could increase the cost of lending. These factors could make gold loans less attractive and impact lenders’ balance sheets.
By exempting small borrowers and allowing time for implementation, the RBI is likely to strike a balance between regulatory requirements and industry needs, ultimately protecting borrowers’ interests. The proposed exemption is expected to benefit millions of small borrowers who rely on gold loans for emergency funding and livelihood support. “It demonstrates a deep understanding of India’s underserved and rural borrowers, who rely heavily on gold-backed credit for essential needs,” said George Alexander Muthoot, Managing Director of Muthoot Finance.
By exempting small borrowers and allowing time for implementation, the RBI is likely to strike a balance between regulatory requirements and industry needs, ultimately protecting borrowers’ interests. The delay in implementation until January 1, 2026, will provide sufficient time for banks and NBFCs to operationalise the new guidelines and ensure compliance. Overall, the exemption is seen as a positive step towards protecting the interests of small borrowers and promoting financial inclusion in India.