While the guidelines are meant to enhance accountability and reduce risk, critics argue they fail to reflect how gold ownership functions in India’s social and cultural context.

Gold has long served as more than an asset in Indian households—it represents heritage, savings, and security. Passed from generation to generation or received during life milestones like weddings, much of this gold is owned without purchase receipts or official documentation. For decades, gold loans have offered a lifeline for urgent needs—medical bills, farming expenses, small business operations—especially in regions with limited access to formal credit.

Under the RBI’s revised norms, lenders must now verify the legal ownership of pledged gold. Without formal proof or documentation, borrowers may be deemed ineligible for loans. Additional stipulations include lower maximum loan values based on the gold’s worth—capping the loan-to-value ratio at 85% for loans up to Rs.2.5 lakh, and reducing it further for larger amounts. Importantly, the total value now includes not just the principal but also interest and processing fees, further lowering the actual disbursed amount.

Borrowers can no longer take new gold loans without first closing existing ones—a move that ends the long-standing practice of rolling over loans by paying only the interest. Income assessments are also now mandatory, disadvantaging informal sector workers who may lack payslips or bank statements. Other changes limit the kinds of gold assets accepted as collateral, including restrictions on coin weights and the exclusion of gold ETFs and mutual funds.

These changes have raised red flags for many. “These norms may look sound on paper, but they ignore how deeply personal and undocumented gold ownership is in India,” said Karti P. Chidambaram, Member of Parliament, who voiced concerns during Parliament’s Zero Hour. “This shift could push legitimate borrowers—particularly women and low-income households—away from banks and back into the trap of private moneylenders charging exploitative interest.”

Real-world cases illustrate the issue. In Andhra Pradesh, a farmer’s wife pawned her wedding bangles—gifted decades ago without receipts—to fund emergency surgery for her husband. In Bihar, a vegetable vendor used his wife’s earrings to restart his business post-COVID. Neither could have met today’s stricter documentation requirements.

The concern is not opposition to regulation, but a call for empathy and realism. Gold loans are often the only bridge between sudden need and available resources for millions. By imposing standards better suited to salaried borrowers in urban India, the RBI risks excluding the very groups who most need this form of credit.

Experts and lawmakers are urging the central bank to re-evaluate the framework and consider a more flexible approach—one that acknowledges how gold is embedded in Indian society as both a financial asset and a cultural heirloom. As Chidambaram notes, “A robust financial system must protect against fraud—but it must also recognise the realities of the people it serves.”

Unless amended, the new gold loan rules could end up reinforcing informal lending networks, reversing years of progress in financial inclusion.

Source:theprint