In a crucial development, the Reserve Bank of India (RBI) has broadened its lending guidelines to allow banks to provide need-based working capital loans to manufacturers that use gold as a raw material, a facility previously limited to jewellers.
Traditionally, banks are barred from financing the purchase of gold or silver in any form, or from lending against primary gold or silver.
However, scheduled commercial banks (SCBs) have been permitted to grant working capital loans to jewellers under a specific carve-out. The new amendment now extends this provision to borrowers engaged in manufacturing or industrial processing where gold or silver is used as an input.
According to the Reserve Bank of India (Lending Against Gold and Silver Collateral) (1st Amendment) Directions, 2025, issued on Monday, September 29, scheduled commercial banks and select urban cooperative banks (Tier 3 and 4) can provide need-based working capital financing to such borrowers, taking gold or silver as collateral.
The directions emphasize that these loans cannot be used to acquire or hold gold or silver for speculative or investment purposes.
In a related move, the RBI also issued the Reserve Bank of India (Interest Rate on Advances) (Amendment) Directions, 2025, aimed at offering borrowers more flexibility while allowing lenders greater discretion.
Under current norms, banks must link all floating-rate retail loans—including housing, auto, and MSME loans—to an external benchmark. While the spread over the benchmark is at the bank’s discretion, components other than the credit risk premium can only be revised once every three years.
The amended guidelines now allow banks to reduce other spread components earlier if it benefits the borrower and give them discretion to offer an option to switch to a fixed rate at the time of reset, beyond the mandatory option for EMI-based personal loans.
Additionally, the RBI revised the eligible limits for perpetual debt instruments (PDIs) denominated in foreign currency or rupee-denominated bonds overseas, enabling banks to raise more Tier 1 capital through international markets.
All the revised directions will come into effect from October 1, 2025, providing greater flexibility to banks while supporting manufacturing entities that rely on gold as a key input.