RBI Governor Sanjay Malhotra said on Wednesday that the central bank would issue comprehensive regulations on prudential norms for gold loans. The new regulations, which are expected to be released today, will cover loans against gold jewellery as collateral. The prudential norms will be applicable for all banks and financial institutions.

In his post-MPC meet briefing, the governor said loans against the collateral of gold jewellery and ornaments are extended by regulated entities for both consumption and income-generation purposes. “In order to harmonise guidelines across various types of regulated entities, to the extent possible, keeping in view their differential risk-bearing capabilities, we shall issue comprehensive regulations on prudential norms and conduct-related aspects for such loans.”

Gold loans are quite popular among common people for their small financial needs.

Reacting to the announcement, shares of gold financing companies Muthoot Finance and IIFL Finance tumbled over 9%, after RBI Governor Sanjay Malhotra said that the central bank will be releasing comprehensive guidelines on gold loans.

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Malhotra also said the draft of these guidelines and regulations are being published today for public consultation. The RBI will finalise these guidelines based on the feedback received.

It was reported in March that the central bank was preparing to implement stricter underwriting standards for gold loans. For this, the central bank asked both banks and non-bank financial institutions to tighten background checks on gold loan borrowers. The move was seen as part of efforts to make financial entities adhere to standard protocols amidst surging gold loans.

The RBI last year carried out a review of the adherence to prudential guidelines as well as practices being followed by supervised entities (SEs) with regard to loans against the pledge of gold ornaments and jewellery.

The review, as well as the findings of the onsite examination of select entities by the Reserve Bank, indicated several irregular practices in this activity.

The major deficiencies included shortcomings in use of third parties for sourcing and appraisal of loans; valuation of gold without the presence of the customer; inadequate due diligence and lack of end use monitoring of gold loans; lack of transparency during auction of gold ornaments and jewellery on default by the customer; weaknesses in monitoring of LTV; and incorrect application of risk-weights, etc.

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Meanwhile, the RBI in its first bi-monthly monetary policy review for the new financial year, cut the key interest rate by 25 basis points (bps) to 6%, raising hopes for loan borrowers who have long been awaiting some impactful reduction in their interest rates. In the previous monetary policy meeting in February, the central bank had reduced the benchmark interest rate by a similar margin, which means the repo rate has come down by 50 bps in 2025.