RBI Allows Gold & Silver As Collateral For Loans, Banks Now Mandated To Follow New Circular

Key Highlights:

-Gold and silver can be accepted as voluntary collateral for agriculture and MSME loans.

-Rules apply to all scheduled commercial banks, RRBs, cooperative and small finance banks.

- RBI seeks unified borrower identification to reduce credit data duplication and errors.

Mumbai: In a major policy shift, the Reserve Bank of India (RBI) has allowed all banks to accept gold and silver as collateral for agriculture and MSME (Micro, Small and Medium Enterprises) loans, even in cases where the loan qualifies as collateral-free. If a borrower voluntarily offers these metals, banks must accept them, as per a new circular issued by the central bank.

RBI clarified that this move does not violate the guidelines on providing collateral-free loans to the agriculture and MSME sectors. The aim is to provide borrowers with more flexibility and access to credit by leveraging their available assets.

Applies to All Types of Banks

These new guidelines are applicable to a wide range of banking institutions, including:

  • Scheduled Commercial Banks

  • Regional Rural Banks (RRBs)

  • Small Finance Banks

  • State Cooperative Banks

  • District Central Cooperative Banks

However, RBI mentioned that the collateral-free loan guidelines do not apply to RRBs and cooperative banks — even though they too must honor voluntary gold/silver offers as collateral.

Focus on Improving Credit Data Accuracy

In another critical update, RBI addressed ongoing issues in India’s credit reporting system. RBI Deputy Governor M. Rajeshwar Rao, speaking at the TransUnion CIBIL Credit Conference, highlighted the urgent need for a unified borrower identifier.

He pointed out that lack of standardized identity systems leads to duplicate data, inaccurate reporting, and errors in credit decisions. Currently, Credit Information Companies (CICs) rely heavily on credit institutions for borrower data, which often lacks uniformity.

To tackle this, RBI is pushing for a secure, verifiable, and system-compatible unique borrower ID, which can greatly improve the credit assessment process and reduce risks for lenders.

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