RBI Allows Voluntary Gold, Silver Pledges For Agri And MSME Loans

The Reserve Bank of India (RBI) has said that borrowers can voluntarily pledge gold or silver as collateral for agriculture and MSME (Micro, Small and Medium Enterprises) loans, even if the loan amount falls within the limit set for collateral-free lending.

In a circular dated July 11, 2025, RBI clarified that such voluntary commitments would not be construed as a violation of current guidelines on collateral-free lending. The clarification refers to previous instructions dated December 6, 2024, for agri-lending and the Master Direction for MSME lending, last revised on June 11, 2024. It also takes recourse to directions dated June 6, 2025, for lending against gold and silver.

Under current practices, banks are required to provide collateral-free loans up to a specific amount to eligible borrowers, including small farmers and micro or small business owners. The aim is to promote wider financial access among those who may not own land, property, or other formal assets. However, some borrowers prefer to offer gold or silver as collateral even when it is not mandatory, either to improve loan approval chances or to access lower interest rates.

Borrower’s Choice, Not Lender’s Demand

RBI has clearly stated that banks cannot demand gold or silver as collateral when a loan qualifies for the collateral-free limit. The use of such collateral must be voluntary and initiated by the borrower. Banks must ensure they do not pressure borrowers into pledging household assets for loans that are otherwise unsecured under policy.

The clarification applies to all scheduled commercial banks, including regional rural banks and small finance banks. It does not apply to state cooperative banks or district central cooperative banks, since the original collateral-free lending rules do not cover them.

Household Gold May Enter Formal Credit Channels

Gold and silver are commonly held in Indian households, especially in rural and semi-urban areas. These assets are often used to secure informal loans. RBI’s clarification may allow borrowers to use them within formal banking channels if they wish, without losing the benefits of collateral-free lending.