DFS Gives Suggestions on RBI’s Draft Directions on Gold Loans
The Department of Financial Services (DFS), under the Ministry of Finance, has reviewed the RBI’s Draft Directions on Gold Loans, 2025 and given its feedback. The suggestions focus on protecting small gold loan borrowers.
The RBI released these draft rules in April 2025, aiming to create a uniform set of rules for all financial institutions like banks, cooperative banks, and NBFCs that give loans against gold jewellery or ornaments. The proposed rules focus on Better risk management, gold valuation processes, and improved transparency in gold loan practices.
The Department of Financial Services (DFS), after a detailed analysis guided by Finance Minister Nirmala Sitharaman, has flagged concerns about the impact of the new RBI rules on small borrowers, mostly those who take loans not more than Rs. 2 lakh, mostly low-income households which depend on such loans for urgent needs or everyday expenses.
What does the RBI Draft Propose?
The RBI’s draft circular mentions the following rules:
- limiting the Loan-to-Value (LTV) ratio at 75% for gold loans, including bullet repayment loans.
- The valuation and analysis process for gold ornaments should be the same for everyone.
- Implementing transparent auction processes for pledged gold if someone does not repay the loan.
- If the gold is damaged or returned late, the borrower should be compensated.
- Lenders must keep an eye on where their given loans are used, especially those for income generation.
- Loans borrowed for personal use with bullet repayment cannot be more than Rs 5 lakh and must be repaid within 12 months.
- Implementing stricter documentation and check requirements across all regulated entities.
What did DFS recommend to RBI?
The Department of Financial Services (DFS) gave the following suggestions:
- Phased Enforcement from January 1, 2026: DFS recommended delaying the start of the new rules to January 1, 2026. This gives lenders enough time to prepare for and train staff and set up the necessary infrastructure.
- Exclude Loans Below Rs. 2 Lakh: DFS suggested that gold loans under Rs. 2 lakh should not be included in paperwork and procedures. This is to make sure to keep things easy and quick, especially for rural and semi-urban areas where these loans are very important.
- Protecting Small Borrowers: DFS indicated that the final rules should encourage the right balance of control and ease of access so that small borrowers can obtain quick and cheap access to gold loans.
