MUMBAI, 11 July 2025: In a significant move aimed at increasing flexibility in rural and small-business lending, the Reserve Bank of India (RBI) has issued a notification permitting banks to accept voluntary pledges of gold and silver as collateral for agriculture and MSME loans — even when the loan amount falls within the collateral-free lending limit.
The circular, issued this week, allows lenders to accept gold and silver collateral without breaching priority sector lending norms or existing guidelines under the collateral-free regime.
This follows the RBI’s December 2024 revision, which raised the collateral-free limit for agricultural loans from ₹1.6 lakh to ₹2 lakh per borrower. The recent clarification ensures that borrowers willing to voluntarily offer precious metals as security can do so, enhancing loan access and reducing risk exposure for banks.
Support for Rural Credit Ecosystem
Banking analysts say the move will particularly benefit small and marginal farmers and rural entrepreneurs, who often hold idle gold assets but face challenges in securing formal credit. By enabling voluntary pledging, the RBI seeks to align traditional wealth with modern finance.
The directive is also expected to improve risk management for banks while maintaining borrower autonomy. It ensures that lenders are not constrained from accepting security if offered, even for loans technically eligible as unsecured.
Industry experts say this development could also improve loan repayment rates and support more inclusive lending for MSMEs, particularly in semi-urban and rural regions.
The RBI notification is expected to be welcomed by banks and borrowers alike, offering both flexibility and security in priority sector lending practices.
Image credit: subkuz.com
