Banks are generally prohibited from lending for the purchase of gold/silver in any form, or lending against the security of primary gold or silver
RBI’s New Amendment on Gold and Silver Lending
RBI has permitted banks to extend need-based working capital loans to manufacturers using gold as raw material, which was earlier allowed only for jewellers.
Banks should not lend against purchase of gold/silver in any form or lend against security of primary gold/silver.
But a carve-out has been permitted by RBI for SCBs for extending working capital loans to jewellers.
The RBI (Lending Against Gold and Silver Collateral) (1st Amendment) Directions, 2025 on Monday (September 29, 2025) has prolonged the carve-out for granting any need-based working capital requirements of a borrower using gold as a raw material or an input in manufacturing/industrial processing.
RBI Guidelines for Banks
… Scheduled Commercial Bank or a Tier 3 or 4 UCB may provide need-based working capital finance to borrowers who use gold or silver as a raw material or as an input in their manufacturing or industrial processing activity, for which such gold or silver can also be taken as collateral, the guidelines stated.
Any bank granting such finance shall make sure that borrowers do not purchase or possess gold for investment or speculative purposes, it added.
Interest Rate Flexibility Update
The central bank has also released Reserve Bank of India (Interest Rate on Advances) (Amendment Directions), 2025 to favour borrowers while offering more flexibility to lenders.
As per the existing guidelines, banks have to link all floating rate personal or retail loans (housing, auto), and floating rate loans to MSMEs, to an external benchmark.
Though banks are at liberty to determine the spread over the external benchmark, except for credit risk premium, all other components of the spread can be revised only once in three years.
Banks can cut the other spread elements for the borrower sooner than three years, the updated guidelines on interest rate on advances said.
It also said that banks may, at their discretion, offer switchover to fixed rate at the time of reset.
The existing guidelines, towards EMI based personal loans, mandates banks to offer an option to the borrowers at the time of reset of interest rates to switch over to a fixed rate.
RBI’s Update on Capital Instruments
The central bank also issued guidelines, that modify the current eligible limit for perpetual debt instruments (PDI) in foreign currency/rupee denominated bonds abroad, thereby giving banks more headroom to increase their Tier 1 capital through international markets.
All these guidelines are going to come into effect from October 1, 2025.
FAQs
Q1: Who can now avail working capital loans using gold as collateral?
Manufacturers and borrowers using gold or silver as raw material in manufacturing or industrial processing can now avail working capital loans.
Q2: Are banks allowed to lend against primary gold or investment in gold?
No, banks cannot lend for investment or speculative purposes related to primary gold/silver.
Q3: From when will the new RBI guidelines come into effect?
All the guidelines will be effective from October 1, 2025.
Q4: Can borrowers switch from floating rate to fixed rate loans?
Yes, banks may offer a switchover option at the time of reset.
Q5: How does this amendment help banks?
It provides banks more flexibility in lending, spreads, and raising Tier 1 capital via PDIs in international markets.
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