New Delhi, July 14 (KNN) In a move aimed at broadening financial access for rural and small borrowers, the Reserve Bank of India (RBI) has issued a new directive permitting banks to accept voluntary pledges of gold and silver from applicants seeking agricultural and MSME loans, even within the threshold typically considered ‘collateral-free’.

According to the circular released on July 11, banks may now accept household gold and silver—such as jewellery, ornaments, and coins—as collateral for loans under Rs 2 lakh, provided the pledge is made voluntarily by the borrower. 

The measure is expected to improve credit access in rural India, where gold remains one of the most liquid household assets.

The RBI had previously mandated in 2023 that all loans backed by gold jewellery be classified as ‘gold loans’, aligning them with stricter repayment norms. 

This reclassification brought such loans under tighter regulatory scrutiny compared to agricultural loans, which often enjoy greater flexibility due to the seasonal nature of farm income. As a result, the gold loan portfolios of public sector banks saw a significant rise over the past year.

By allowing secured lending in this voluntary format, the directive aims to reduce borrowers’ reliance on informal credit channels, tighten repayment discipline, and help banks expand credit delivery to underserved segments. 

The move also supports banks in meeting their priority sector lending obligations.

However, the circular clearly limits acceptable collateral to physical assets—excluding financial instruments such as gold exchange-traded funds (ETFs), mutual funds, or digital gold. 

This distinction, according to the RBI, is intended to maintain lending stability and mitigate market-related volatility.

Overall, the measure is seen as a step toward deeper financial inclusion, offering greater flexibility to borrowers while maintaining prudential lending standards.

(KNN Bureau)