The Reserve Bank of India (RBI) has created a single, clear rulebook for banks and financial companies on how they can give short-term loans when people pledge (deposit) their gold or silver jewellery or coins as collateral. This helps borrowers meet urgent cash needs without selling their assets and protects lenders from risks.
1. Who Must Follow These Rules
– Commercial banks (except payments banks)
– Urban and rural co-operative banks
– Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs)
2. What Counts as “Eligible Collateral”
– Gold jewelry or ornaments
– Gold coins
– Silver jewelry or ornaments
– Silver coins
Primary (raw) gold or silver bars, and gold/silver ETFs or funds, are not eligible.
3. Key Definitions
- Loan-to-Value (LTV) Ratio: Maximum loan amount divided by collateral value.
- Consumption Loans: For personal needs (e.g. medical, education).
- Income-Generating Loans: For productive uses (e.g. farm credit, business).
- Bullet Repayment Loan: Full principal + interest paid at end of the loan term.
- Top-up Loan: Extra loan on top of an existing one, using the same collateral.
4. Loan Limits and LTV Ratios
– For total loans up to ₹2.5 lakh: LTV ≤ 85%
– For loans between ₹2.5 lakh and ₹5 lakh: LTV ≤ 80%
– For loans above ₹5 lakh: LTV ≤ 75%
The LTV must be checked and maintained throughout the loan.
5. Loan Amount, Weight & Tenor Caps
- Weight Limits:
- Gold ornaments: up to 1 kg per borrower
- Silver ornaments: up to 10 kg per borrower
- Gold coins: up to 50 g per borrower
- Silver coins: up to 500 g per borrower
- Loan Term:
- Maximum 12 months for bullet repayment loans (renewable).
6. How Collateral Is Valued
- Use the published market price for the metal’s actual purity (carat).
- Take either:
- 30-day average closing price, or
- Previous day’s closing price—whichever is lower.
- Only the metal’s value counts; gems or stones are excluded.
7. Assaying and Documentation
- Collateral purity and weight must be measured (assayed) by certified staff.
- Procedures must be uniform across all branches.
- Borrowers must be present during assaying and receive a detailed certificate showing purity, gross weight, net metal weight, and value.
- Loan agreements must explain collateral details, auction rules, all charges, and timelines in the borrower’s language.
8. Collateral Storage and Handling
- Collateral must be stored securely in bank vaults.
- Only trained employees handle it.
- Surprise internal audits and physical checks are required.
- If branches move or close, collateral transfer must follow strict policies.
9. Returning Collateral
- After full repayment, banks must return the pledged gold/silver within seven working days.
- Borrowers can verify the collateral matches the certificate before taking it back.
10. Auction Rules (if Borrower Defaults)
- Notice: Banks must notify the borrower to repay before auction.
- Public Notice: If borrower is unreachable, publish in one regional and one national newspaper and wait one month.
- Reserve Price: Minimum 90% of collateral’s current value (85% if auction fails twice).
- Location: First auction in the lending branch’s district; if it fails, adjoining district or online.
- Transparency: Auction must be public, handled by trained staff or empanelled auctioneers.
- Proceeds: After auction, adjust dues, refund any surplus to borrower within seven working days, and recover any shortfall.
11. Compensation and Unclaimed Collateral
- Damage/Loss: Banks must repair damage or compensate for loss/deterioration.
- Delayed Return: ₹5,000 per day if the bank delays collateral release without valid reason.
- Unclaimed Collateral: If not claimed within two years of repayment, treat as unclaimed and review it twice a year.
12. Conduct and Disclosure Requirements
- No misleading advertisements.
- Loans must be disbursed and repaid through the borrower’s own bank account.
- All terms must be in clear language; illiterate borrowers get explanations in presence of a witness.
- Banks must report details of all gold/silver-backed loans and auctions in their annual financial statements.
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