Reserve Bank of India Expands Loan Options with Silver Collateral

The Reserve Bank of India (RBI) has announced new guidelines that will allow silver to be accepted as collateral for loans, similar to gold. This change is part of the RBI’s efforts to standardize lending practices against precious metals, with the new regulations set to take effect on April 1, 2026. The measures aim to enhance borrower protection, improve transparency, and bolster lender accountability across various financial institutions, including commercial banks and non-banking financial companies (NBFCs).

Under the new guidelines issued on June 6, borrowers can secure loans against silver and gold jewellery, ornaments, or coins to address short-term financial needs. However, the RBI has specified that loans against primary gold or silver, such as bullion, will not be permitted to discourage speculative activities. Additionally, borrowers cannot re-pledge or lend against gold or silver that has already been pledged, nor can they take loans for purchasing gold or silver-backed securities, such as exchange-traded funds (ETFs).

Key Changes to Loan Parameters

One of the significant updates includes an increase in the Loan-to-Value (LTV) ratio for small loans. Borrowers can now obtain up to 85% of the gold value as a loan, up from the previous limit of 75%. This updated LTV cap applies to total loan amounts up to Rs 2.5 lakh (approximately USD 3,000), including interest. For instance, if a borrower’s gold is valued at Rs 1 lakh, they can now secure a loan of up to Rs 85,000.

The guidelines also introduce a 12-month limit for bullet repayment loans, where both interest and principal are due at the end of the loan term. This stipulation provides clarity and encourages timely repayment among borrowers.

Specific limits have been placed on the amount of gold and silver that can be pledged for loans. Borrowers can now pledge:
– Gold ornaments up to 1 kg
– Gold coins up to 50 grams
– Silver ornaments up to 10 kg
– Silver coins up to 500 grams

These limits apply per borrower across all lender branches, ensuring consistent lending practices.

Enhanced Borrower Protections

The RBI’s new regulations also focus on the efficient return of pledged items. Lenders are required to return any pledged gold or silver on the same day the loan is closed, or within 7 working days. In cases of delay, lenders must compensate borrowers at a rate of Rs 5,000 per day.

Furthermore, if pledged gold or silver is lost or damaged during audits or handling, lenders are mandated to fully compensate the borrowers. This requirement reinforces the importance of safeguarding borrowers’ assets throughout the lending process.

In the event of loan defaults, lenders must adhere to a transparent auction process. They are obligated to issue a proper notice before auctioning any pledged gold, ensuring that the reserve price is set at a minimum of 90% of the market value, adjusting to 85% after two failed auctions. Any surplus generated from the auction must be returned to the borrower within 7 working days, further protecting borrowers’ interests.

Communication is also a focal point of the new guidelines. All loan terms and valuation details must be provided in the borrower’s preferred or regional language. For borrowers who are illiterate, critical information must be shared in the presence of an independent witness to ensure understanding.

These comprehensive changes by the RBI reflect an effort to create a more secure and transparent lending environment for borrowers using silver and gold as collateral. As the implementation date approaches, both lenders and borrowers will need to familiarize themselves with these new regulations to navigate the evolving landscape of secured loans effectively.