The Reserve Bank of India clarified on Friday that banks could extend agricultural and MSME loans against voluntarily pledged gold and silver without violating collateral-free loan norms, provided the lending falls within the permissible collateral-free limit.
The clarification is significant in the context of the RBI's existing guidelines on collateral-free loans to the agriculture and micro, small and medium enterprises, which are often interpreted restrictively.
The central bank said that such voluntary pledges will not be treated as a breach of its December 2024 circular on credit flow to agriculture or the master direction on MSME lending, according to a release.
This effectively allows borrowers, particularly small farmers and micro enterprises to use personal gold or silver as collateral to access formal credit, as long as the loan amount stays within the defined collateral-free ceiling.
The move is expected to help improve credit access in rural and informal segments, where gold assets are often the most liquid and readily available form of security.
The RBI had issued the Lending Against Gold and Silver Collateral Directions, 2025, in June to streamline the regulatory framework around precious metal-backed loans.
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