Source: Current Affairs- Adda 247
The Finance Ministry has asked the Reserve Bank of India (RBI) to relax certain new rules that were suggested in April relating to gold loans. The rules were intended to restrict how gold loans were being given and monitored, particularly after a recent surge in the number of gold loans.
In a post shared by their official handle on social media site X, the Ministry’s Department of Financial Services stated that the new rules could negatively impact small borrowers who rely on gold loans to quickly meet their cash-flow needs. The Ministry requested that the RBI exempt small-ticket borrowers—those borrowing under ₹2 lakh (approximately $2,344)—from these new stricter regulations for the smooth and timely disbursement of loans.
Gold loans are highly sought after in India, especially for low-income households and individuals who do not have access to a formal credit system. They provide an easy and fast way to get money in exchange for gold jewellery or coins as collateral. According to the Reserve of India (RBI), gold loan disbursements increased by around 30% in the period between September 2024 and February 2025, prompting them to consider more rigorous monitoring and disbursement processes.
The Finance Ministry suggested to the RBI that to ensure a smooth transition, the proposed rules and guidelines should not take effect until January 1, 2026. The Ministry argued that the pending timeline would allow banks, non-banking financial companies (NBFC), and other lenders ample time to provide adequate training for their ground-level staff and align their systems with any recommendations made in the proposed guidelines and rule.
The RBI had published their proposed regulations, which allowed the facilitation of public comments, through mid-May. The RBI has yet, to conclude, with the final set of intended regulations.
The Finance Ministry’s announcement had a direct effect on stock markets and was positively taken by leading gold loan companies. Shares of Muthoot Finance increased by 4.9%, while shares of Manappuram Finance increased by 0.5%, while shares of IIFL Finance fell marginally by 0.6%.
This decision by the Finance Ministry continues a theme, by the Government, to attempt to encourage good regulation while protecting potential small borrowers. The RBI intends to develop better safety, and increased transparency for gold backed lending, and the Finance Ministry wishes to see poor individuals maintain access to money, if money is required, during hard times.
While the RBI receives and considers input to finalize the new framework, borrower, lender and investor stakeholders await the next steps. The decision will dictate gold loan lending in the country.
