Can NBFCs Offer Gold Loans in India? Scope Eligibility, Rules& Compliance

India’s love for gold is so much so that we are the largest consumer of the yellow metal in the world. Our jewellery consumption stood at 563.5 tons in 2024 alone! People from rural as well as urban parts of India own gold. Part of the reason why everyone stores gold is its ability to easily be transferred into cash. When people are in need of urgent cash, they can easily take up loans against their gold. 

India’s gold-backed lending market has long been a cornerstone of credit access for millions, especially in rural and semi-urban regions. NBFCs are the heart of this market. They are indispensable lenders having deep grassroots presence. 

However, as the Reserve Bank of India (RBI) rolls out new regulatory directives under its RBI gold loan framework (set to take full effect from April 1, 2026), the very foundation of how these institutions operate is being redefined.

This blog answers a critical question: Can NBFCs offer gold loans in India? The short answer is yes, but only under strict regulatory conditions that include obtaining a valid gold loan license, meeting capital and compliance norms, and aligning with the newly issued Master Directions from the RBI. The process of NBFC registration is a crucial first step for any entity looking to enter this market.

In this blog, we will cover –  

• Scope: What Can Be Used as Collateral?
• Eligibility:What NBFCs will assess before lending applicants

• New RBI compliance rules 
• Which NBFCs can offer gold loans in India?
• Scope for NBFCs
• Commonly Asked Questions

Let’s dive in. 

Scope: What Can Be Used as Collateral?

Under the latest RBI guidelines, NBFCs can offer loans against both gold and silver. This is a move that widens access to credit, especially in semi-urban and rural India, where silver is commonly held.

Permissible Collateral:

1. Gold Jewellery and Ornaments

• Up to 1 kg per borrower can be pledged.
• Gold must be valued based on its actual purity (caratage).

The price is derived using either:

1. Previous day’s market rate, or
2. 30-day average price, whichever is lower.
3. Rates must be sourced from IBJA or SEBI-recognised commodity exchanges.

2. Silver Jewellery and Ornaments

• Up to 10 kg per borrower is permitted.
• Valued at 999 purity, with the same pricing methodology as gold.
• Categories defined: Jewelry, Ornaments, and Primary Silver.

This expansion of permissible collateral allows NBFCs to extend lending services to previously underserved communities while ensuring standardized valuation practices that reflect real-time market dynamics.

Eligibility: How NBFCs Will Assess Borrowers

Under the updated RBI gold loan framework, eligibility assessment is no longer just collateral-based. NBFCs must now evaluate borrowers through a combination of traditional and income-based parameters:

• New Borrower Assessment Norms:

Cash flow-based credit appraisal is mandatory for:

• All income-generating loans
  All loans above ₹2.5 lakh

NBFCs must now collect and review:

• Income documents (salary slips, ITRs)
• Bank statements
• Household cash flow information for informal workers

For loans up to ₹2.5 lakh, simplified eligibility rules apply:

• Basic KYC verification
• Limited or no documentation on income
• Faster disbursal norms to promote financial inclusion

This move ensures borrowers are not overleveraged, strengthens responsible lending practices, and aligns NBFC gold loans with broader credit risk frameworks.

New RBI Master Directions: What’s Changing?

On the back of industry feedback and the need to balance financial inclusion with credit discipline, the RBI has released its Final Master Directions on gold and silver-backed loans. Let’s break down what these new rules mean for NBFCs.

1. Tiered Loan-to-Value (LTV) Norms

Earlier, a flat 75% LTV cap was applied across the board. Under the new RBI guidelines, LTV norms for NBFC gold loan products are more detailed – 

• Up to ₹2.5 lakh: LTV up to 85%
• ₹2.5 lakh – ₹5 lakh: LTV capped at 80%
• Above ₹5 lakh: LTV remains 75%

Impact: This encourages NBFCs to extend more credit for smaller loans, promoting affordability while keeping risk in check. For high-value loans, lenders need to be more cautious, especially considering gold price volatility.

Shift to Cash Flow-Based Credit Appraisal

One of the biggest shifts in the RBI gold loan policy is the mandatory transition from collateral-backed assessment to cash flow-based borrower evaluation, especially for:

• Consumption loans above ₹2.5 lakh
• All income-generating loans

NBFCs must now evaluate the borrower’s repayment capacity through:

• Income documents
• Bank statements
• Cash flow analysis

Impact – This requires NBFCs to revamp their credit underwriting systems, hire and train credit officers, and implement more sophisticated loan management platforms. 

Valuation of Collateral: Gold & Silver

The valuation methodology has been updated to reflect actual market dynamics:

1. Gold or Silver is now valued based on reference price corresponding to its actual caratage (purity)
2. Silver, newly included in the guidelines, follows 999 purity

The price per gram of the pledged metal (gold or silver) must be derived from:Prices to be derived from:

• Previous day price or
• 30-day average price (whichever is lower)
• As published by IBJA or SEBI-recognised commodity exchanges

Impact –  This avoids overvaluation and protects both lenders and borrowers from market shocks. NBFCs must update their SOPs and train internal assayers accordingly..

Inclusion of Silver as Collateral

Previously excluded, silver is now officially recognized under the RBI gold loan framework:

• Defined categories: “Jewellery,” “Ornaments,” and “Primary Silver”

Maximum limits – 

• 1 kg of gold jewellery
• 10 kg of silver jewellery per borrower

Impact – NBFCs serving rural and semi-urban markets, where silver is more commonly held, can now diversify product portfolios and reach new borrower segments.

Proportional Compliance for Small-Ticket Loans

Loans up to ₹2.5 lakh benefit from:

• Simpler credit checks
• Faster disbursal
• Reduced documentation

Impact – NBFCs involved in micro-lending or working with unbanked populations gain flexibility, encouraging more inclusive credit delivery. .

Operational & Structural Reforms

1. Auction Procedures

• No longer restricted to empanelled auctioneers
• Trained internal employees can now conduct auctions
• Surprise audits and internal checks to be enforced

2. Reserve Price for Auction

• Can drop to 85% of asset value (after two failed attempts)

3. Auction Geography

• • First auction: within district of branch

• Second auction: in adjoining district

Impact – Streamlines recovery, reduces delay, and improves operational flexibility.

 Changes in Loan Renewal Rules

• Bullet loans (loans with lump-sum payment at end) can now be renewed if interest accrued till date is paid.

Impact – This aligns regulatory expectations with existing market practices and reduces loan discontinuation risks.

Equal Treatment for Hallmarked & Non-Hallmarked Jewellery

Preferential treatment for hallmarked jewelry has been removed.

• Many rural borrowers possess ancestral jewellery without hallmark or receipt
• Equal opportunity promotes fairness and access

Impact – This makes NBFC gold loan products more accessible to low-income borrowers, especially in rural markets.

Documentation, Disclosures & Communication

• Loan disclosures in local languages
  All key loan terms such as interest rate, repayment schedule, loan amount, auction terms, etc, must now be provided in a language the borrower understands. This ensures clarity, especially in rural or semi-urban areas where English or Hindi may not be the primary language.
• Categorisation of loans into consumption/income-generating
  NBFCs must clearly state whether the gold/silver loan is being taken for personal consumption (e.g., medical expense, wedding) or for income-generating purposes (e.g., buying equipment, funding a business). This classification helps the RBI and lenders track loan usage trends and align with Priority Sector Lending (PSL) norms.
• Separate reporting for gold and silver-backed loans
  NBFCs are now required to report gold and silver loans separately in their regulatory filings. Since silver has only recently been included as eligible collateral, this distinction will help the RBI monitor lending patterns and manage associated risks more accurately.
• Standardised pledge documentation
  NBFCs must issue uniform and legally robust pledge agreements to borrowers, clearly stating the terms of the gold/silver pledge, auction process, borrower rights, and liabilities. This minimises disputes and ensures fair treatment of borrowers during recovery or auction processes.

NBFCs must now ensure:

• Loan disclosures in local languages
• Categorisation of loans into consumption/income-generating
• Separate reporting for gold and silver-backed loans
• Standardised pledge documentation

Impact – Greater transparency builds trust and reduces mis-selling.Adherence to these guidelines is part of the ongoing compliance required post-NBFC registration.

What About End-Use Verification?

The final guidelines have relaxed one of the most contentious points:

• NBFCs no longer need to verify end-use of income-generating loans
• Instead, documentation for Priority Sector Lending (PSL) eligibility is encouraged

Impact – This reduces compliance burden while keeping policy objectives intact. The relaxation helps streamline operations for NBFCs with valid NBFC registration.

Which NBFCs Can Offer Gold Loans in India?

NBFCs can legally offer gold loans in India, but only if they:

• Are registered with the RBI under Section 45-IA of the RBI Act, 1934.(This initial NBFC registration is fundamental.)
• Hold a valid Certificate of Registration (CoR).
• Have a minimum Net Owned Fund (NOF) of ₹2 crore (₹5 crore for NBFCs operating pan-India)..
• Have obtained specific authorization to offer NBFC gold loan products.

Banks vs. NBFCs –  

Compliance: Disclosures & Reporting Requirements

The RBI has significantly tightened disclosure, transparency, and reporting obligations for NBFCs offering gold and silver loans. These requirements aim to protect borrowers and promote ethical lending. Here are the key measures:

• Standardised Loan Documentation

• • NBFCs must issue clear, legally compliant pledge documents.

• Terms like interest rate, repayment schedule, valuation method, and auction procedures must be clearly stated.

• Local Language Disclosures

• Loan documents must be made available in the borrower’s regional language.
• This includes valuation slips, repayment plans, and auction notifications.
• Ensures transparency for low-literacy or rural borrowers.

• Loan Categorisation

All loans must be tagged as either

• Consumption loans
• Income-generating loans

This distinction impacts LTV norms and end-use monitoring requirements.

• Separate Gold and Silver Reporting

• • NBFCs must report gold- and silver-backed loans independently in regulatory filings.

• Data must include pledged weight, valuation method, and outstanding loan balance.
  

• Auction Disclosure Protocol

• • NBFCs must Disclose auction rights and procedures upfront
  • Provide timely borrower notifications before the auction.

• Allow appeals/grievances post-auction if necessary
  

• Grievance Redressal Mechanism

A clearly defined system must be in place to handle disputes over:

• Loan terms
• Collateral valuation
• Auction outcomes

Failure to comply with these norms may lead to penalties, audit flags, or restrictions on gold loan activities. Therefore, robust compliance frameworks are now essential for NBFCs post-registration.

Conclusion – 

Yes, NBFCs Can Offer Gold Loans, But With Conditions

To sum up, NBFCs can offer gold loans in India, provided they are registered with the RBI, have a valid gold loan license, and comply with the updated RBI gold loan directions. The process of NBFC registration is a continuous journey of compliance.

For NBFCs willing to evolve, this is a rare opportunity to lead India’s evolving gold loan narrative which is now backed not just by gold, but by trust, compliance, and long-term vision.

Need help with gold loan licensing or adapting your compliance framework? NBFC Advisory’s NBFC experts are here to help. We are here to help you through every step of the NBFC registration process and ongoing compliance.