India’s central bank is taking decisive steps to tighten regulations on gold loans, implementing stricter underwriting processes and monitoring the end-use of funds. This move comes as the segment experiences rapid growth, raising concerns over financial stability and ethical lending practices.
The Reserve Bank of India (RBI) is pushing banks and non-banking financial institutions (NBFCs) to enhance borrower background checks and verify ownership of pledged gold. These measures aim to ensure that lending in this sector remains within ethical and regulatory boundaries. The regulator’s audits over the past year have revealed irregularities in gold valuation, loan sourcing, and fund utilization, prompting calls for corrective action.
Gold loans have surged by 50% since September 2024, outpacing overall credit growth, largely due to tightened restrictions on unsecured lending. In India, where gold is deeply ingrained in cultural traditions, soaring prices have made gold-backed borrowing an attractive option. However, the RBI has identified lapses, including fintech agents handling tasks meant for lenders and unauthorized gold auctions without notifying defaulting borrowers.
To address these concerns, the central bank is working towards uniform regulations that will prevent any lender from bypassing compliance measures. By enforcing stricter oversight, the RBI seeks to curb unethical practices while maintaining financial stability in the growing gold loan market.
