In response to a significant 30% surge in gold-backed loans between September 2024 and February 2025, the Reserve Bank of India (RBI) has unveiled a series of proposed guidelines aimed at tightening the regulatory framework governing such lending practices. This move seeks to bolster risk management protocols and ensure the ethical utilization of funds in the rapidly expanding gold loan sector.

The proposed measures encompass the establishment of single-borrower and sectoral limits within lenders' gold loan portfolios, the enforcement of a 75% loan-to-value (LTV) ratio, and the implementation of standardized procedures for assessing the weight and purity of gold collateral. Additionally, the RBI mandates that lenders periodically monitor and maintain documentary evidence of borrowers' fund usage to prevent misallocation.

To mitigate risks associated with collateral, the RBI stipulates that the same gold asset cannot be pledged for multiple loans simultaneously. Furthermore, loans are prohibited if the collateral's ownership is uncertain or if it has been re-pledged, ensuring the authenticity and singularity of the pledged assets.

These regulatory enhancements follow the RBI's earlier identification of irregular practices within the gold loan industry, including inadequate due diligence, improper appraisal and valuation of gold, and misuse of loan funds. By proposing these stricter guidelines, the RBI aims to standardize protocols across all lenders, curb unethical practices, and safeguard financial stability in the burgeoning gold loan segment.