RBI may soon change how borrowers renew, extend or top up their gold loans

A surge in gold loan activity has prompted the Reserve Bank of India (RBI) to tighten its grip on the sector. On April 9, Governor Sanjay Malhotra announced that the central bank will soon release comprehensive draft guidelines aimed at harmonizing regulations for loans backed by gold jewellery. 

The move triggered a sharp reaction in the markets, with shares of major gold financiers Muthoot Finance and IIFL Finance falling as much as 9%.

“The draft guidelines in this regard are being issued for public comments,” the RBI said during its Monetary Policy Committee (MPC) review.

The upcoming norms are designed to unify lending practices across all regulated entities (REs) while taking into account their risk-bearing capacities. Currently, rules differ widely among banks and non-bank lenders. The new framework will address prudential and conduct-related aspects, especially following a spate of red flags identified in recent RBI audits.

These inspections revealed several operational lapses—ranging from improper gold valuation and inadequate due diligence to questionable auction practices and inconsistent Loan-to-Value (LTV) ratios. Alarmingly, some lenders were found using fintech agents to handle tasks like gold storage and weighing, traditionally managed by the lenders themselves.

The RBI said it aims to fix these vulnerabilities by mandating tighter underwriting norms. These include improved background checks on borrowers, gold ownership verification, stricter end-use monitoring, and uniform controls over third-party service providers.

The tightening comes on the back of explosive growth in the segment. Gold loans by banks grew 76% year-on-year in January 2025, with monthly growth rates exceeding 50% since September 2024.

Borrowers are already feeling the heat. Several banks now demand full repayment before extending tenures, recheck gold purity during renewals, and charge additional fees for extensions. The once-frequent practice of same-day loan rollover by paying interest alone is also being curtailed.