Gold Gets the Green Light: RBI Unlocks Credit for Rural and Micro Sectors

In a pioneering move towards boosting financial inclusion, the Reserve Bank of India (RBI) has clarified that banks can accept voluntary gold and silver deposits as collateral for micro-enterprise credit and agriculture credit—without contravening collateral-free lending guidelines. The relaxation of regulations is likely to significantly boost credit availability for small farmers and micro units.

Major Takeaways from the RBI Directive

Farm credit of up to ₹2 lakh and micro and small enterprise (MSE) credit up to ₹10 lakh can now be securitized by voluntarily pledged gold or silver.

Such commitments will not contravene RBI's guidelines on collateral-free lending, as long as they are borrower-initiated and not bank-imposed.

The move brings to an end years of ambiguity over loan classification, allowing gold-backed loans to retain priority sector lending (PSL) status.

Consequences for Banks and Borrowers

Farmers and small entrepreneurs generally prefer to pawn gold to avoid the paperwork involved with unsecured loans. This directive legitimizes that preference.

Banks can now classify gold-back crop loans as agricultural loans to promote greater participation in PSL.

The change will most probably increase rural credit supply, with gold and silver being potential sources of funds.

Regulatory Framework and Goals

As per PSL guidelines, 40% of banks' net adjusted credit must be allocated to priority sectors, of which 18% to farming and 7.5% to micro enterprises.

The RBI clarification is consistent with its broader goal of linking informal savings to formal finance.

Sources: Economic Times, Business Standard, Hindu BusinessLine, Zee Business, SiliconIndia