RBI orders sector-wide gold loan review over irregular practices
The Reserve Bank of India directed all banks and NBFCs to review their gold loan practices within three months, after examinations found irregularities in sourcing, valuation, LTV monitoring and auctions.
What the Record Shows
The Reserve Bank of India directed every bank and non-bank lender that offers gold loans to review its policies, processes and practices for the product, fix the gaps and report back within three months, in circular RBI/2024-25/77 dated 30 September 2024. The circular is titled "Gold loans - Irregular practices observed in grant of loans against pledge of gold ornaments and jewellery" and carries reference DoS.CO.PPG.SEC.10/11.01.005/2024-25.
The direction applies across the sector: all commercial banks other than regional rural banks and payments banks, all small finance banks, all primary (urban) co-operative banks and all NBFCs. It is a prudential, sector-wide instruction rather than an action against a single lender. No entity is named in the circular, and no monetary penalty is attached to it.
Per the circular, the RBI said its on-site examinations had found several irregular practices in the way loans were being granted against pledged gold. It asked supervised entities to comprehensively review the deficiencies against their own operations, take remedial action, and submit an action-taken report to the Senior Supervisory Manager within three months, that is by 30 December 2024.
Because the circular names no lender, none of the listed shortcomings can be attributed to any particular bank or NBFC on the strength of this document alone. What the record establishes is that the RBI, as supervisor, observed these patterns across its examinations and required the whole sector to correct them.
How It Worked
The RBI's circular set out the irregularities it had observed as supervisor, and read together they describe the weak points of a gold loan operation. On the front end, the RBI found that sourcing and appraisal of gold had in places been outsourced to fintech partners and business correspondents, with valuation sometimes done in the customer's absence and the pledged gold held for safekeeping by those third parties rather than the lender.
On credit discipline, per the circular, the RBI observed inadequate due diligence and an absence of end-use monitoring, weak monitoring of the loan-to-value ratio and breaches of the LTV ceiling, and incorrect application of risk weights. It flagged the use of top-up loans without a fresh appraisal and without a unique identifier, a structure the RBI has elsewhere associated with evergreening, where a fresh advance masks stress on an existing one.
On operations and recovery, the RBI recorded opacity in the auction process when a borrower defaulted, poor valuation reflected in low realisations at auction, cash disbursals above the statutory limit, multiple loans to the same person against a single PAN, rollovers on part payment, unusually rapid loan closures soon after sanction, and the non-classification of overdue gold loans as non-performing assets.
The credential angle the RBI highlighted is the business-correspondent and fintech channel. Where gold is appraised and stored by an unregulated third party acting for a regulated lender, the safekeeping and valuation of the collateral, which is the whole security behind the loan, moves outside the direct control of the entity the RBI supervises. The circular's remedy was procedural rather than punitive: identify the gaps, fix them, and report the action taken.
The circular was the first step. The RBI subsequently consolidated its expectations into the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025, a comprehensive rule set for the product notified in 2025, which brought lending against gold and silver collateral under a single framework covering valuation, LTV and end-use, to be implemented from 1 April 2026.
Who Lost Money
This is a prudential directive, not a loss event, so there is no quantified sum and no identified set of victims in the circular. The RBI did not allege that any borrower was defrauded, and it attached no amount to the action. The harm the circular addresses is the risk that flows from weak controls rather than a crystallised loss.
That said, the practices the RBI listed map onto real borrower exposure. A gold loan borrower whose ornaments are valued in their absence, or auctioned opaquely at a low realisation on default, can lose value in the pledged gold that stands behind the loan. Weak LTV monitoring and rollovers on part payment can leave a borrower more heavily exposed than the headline loan suggests. The RBI's concern is both borrower protection and the integrity of lenders' own balance sheets, since overdue gold loans not classified as NPAs understate the stress a lender is carrying.
Because no lender is named and no loss is quantified, the honest position is that this record documents a supervisory finding of risk across the sector, not a tally of money lost by identified customers.
Where It Stands Now
The 30 September 2024 circular is a completed, operative supervisory direction; its three-month reporting window closed on 30 December 2024, by which point supervised entities were required to have reviewed their practices and reported the action taken. It was not an interim measure and there is nothing to appeal, since it directs a review rather than imposing a penalty.
The framework has since moved from a corrective circular to standing rules. The Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025 consolidated the RBI's requirements for lending against gold and silver into a single set of directions, with implementation set for 1 April 2026. As of today those directions are the operative rulebook for the product, and the 2024 circular reads as the diagnostic that preceded them.
The presumption of a specific wrongdoing does not arise here because no entity is accused of anything in the circular. The document is a supervisor telling the entities it regulates to bring a product line into line with its standards, which readers can follow alongside other RBI actions in the enforcement archive.
What It Means
For a borrower, the circular is a useful checklist of what a properly run gold loan should look like. The gold should be valued in your presence, held by the regulated lender or its authorised custodian, and disbursed within the cash limits the law sets. The auction process on default should be transparent, with the realisation and the surplus accounted for. If a lender's practice departs sharply from these, the RBI itself has flagged the same features as irregular.
The concrete protective takeaway is to deal with an entity the RBI actually regulates and to keep the paperwork. Ask who is valuing and storing the gold, and whether that party is the lender or a third-party business correspondent. Keep the pledge receipt, the valuation certificate and the loan agreement, since these are what let you check the LTV, the interest, and the auction terms if default is ever threatened. The RBI's own list of business restrictions and penalties in the same sector shows the tools it uses when a lender falls short, from the review it demanded here to the harder action seen when the RBI halted IIFL Finance gold loans over documented breaches, and when the RBI barred JM Financial Products from parts of its financing business.
FAQ
What did the RBI order in the September 2024 gold loan circular?
Per circular RBI/2024-25/77 dated 30 September 2024, the RBI directed all banks (except RRBs and payments banks), small finance banks, urban co-operative banks and NBFCs to review their gold loan policies, processes and practices, remedy the gaps its examinations had identified, and submit an action-taken report within three months, by 30 December 2024.
Did the RBI name any bank or NBFC in this circular?
No. The circular is a sector-wide prudential direction and names no individual lender. The irregular practices it lists were observed by the RBI across its supervisory examinations, and none of them can be attributed to any specific bank or NBFC on the basis of this circular alone.
What irregular practices did the RBI observe?
The RBI listed practices including valuation of gold in the customer's absence, appraisal and storage outsourced to third parties, weak loan-to-value monitoring and LTV breaches, cash disbursals above the statutory limit, opaque auctions on default, top-up loans enabling evergreening, and overdue gold loans not being classified as non-performing assets.
Was any penalty or loss involved?
No. This is a prudential directive with no monetary penalty and no quantified loss. The RBI did not allege that any borrower was defrauded; it required the sector to correct control weaknesses that create risk for both borrowers and lenders.
What has changed since the 2024 circular?
The RBI consolidated its expectations into the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025, notified in 2025, with implementation from 1 April 2026. As of today those directions are the operative framework for lending against gold and silver collateral.
Where can I read the official circular?
The circular is published on the RBI website as RBI/2024-25/77, "Gold loans - Irregular practices observed in grant of loans against pledge of gold ornaments and jewellery", dated 30 September 2024.
This report is based on the Reserve Bank of India circular RBI/2024-25/77 dated 30 September 2024 and the subsequent Lending Against Gold and Silver Collateral Directions, 2025, reviewed on 31 July 2026.
This report describes enforcement actions and allegations on the public record, attributed to the officials cited. An order, FIR or chargesheet is not a conviction; parties are presumed innocent until proven guilty.
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