Gold Loans: Centre Exempts Small Borrowers After Tamil Nadu Pushback

Tamil Nadu: The Union Finance Ministry on Friday said it had recommended exempting small borrowers, those seeking loans below Rs 2 lakh, from the Reserve Bank of India’s (RBI) proposed gold loan regulations, following concerns raised by Tamil Nadu Chief Minister M.K. Stalin and other stakeholders.

In a post on X, CM Stalin welcomed the Centre’s response, stating, “Glad to note that @FinMinIndia has responded to the concerns raised by me in my letter to the Hon’ble Union Finance Minister regarding @RBI’s draft guidelines on gold loans. Protecting the interests of small borrowers, especially those seeking loans below Rs. 2 lakh such as farmers and daily earners and ensuring timely and accessible credit has been my consistent demand.”

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“While appreciating the positive consideration given to this issue, we emphasize that such policies having significant impact on poor should be arrived after due prior consultation with States,” he added.

Glad to note that @FinMinIndia has responded to the concerns raised by me in my letter to the Hon’ble Union Finance Minister regarding @RBI’s draft guidelines on gold loans.

Protecting the interests of small borrowers, especially those seeking loans below Rs. 2 lakh such as… https://t.co/fq3HjFhqsa

— M.K.Stalin (@mkstalin) May 30, 2025

Stalin, while appreciating the Centre’s willingness to reconsider the proposed policy, emphasised that “such policies having a significant impact on the poor should be arrived at after due prior consultation with States.”

The draft guidelines, issued by the RBI on April 9, 2025, sought to tighten lending norms for gold-backed loans. Key proposals included capping the loan-to-value (LTV) ratio at 75%, imposing stricter usage checks on borrowed funds, and strengthening collateral management by banks and non-banking financial companies (NBFCs).

However, the Finance Ministry, under Union Finance Minister Nirmala Sitharaman, advised the RBI to exclude borrowers with loans under Rs 2 lakh from these strict norms. It also suggested delaying implementation until January 1, 2026, to allow financial institutions time to adjust.

The Centre’s response follows strong political opposition in Tamil Nadu. Regional parties, farmer groups, and financial rights activists warned that the RBI’s proposed restrictions would disproportionately hurt rural and low-income borrowers who often depend on gold loans for urgent needs like medical expenses or agricultural inputs.

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The Reserve Bank has begun reviewing feedback from state governments, financial institutions, and the public. A final decision is expected in the coming months.

With Tamil Nadu being one of the largest consumers of gold-backed loans in the country, the state’s intervention played a critical role in shaping the policy reconsideration. Stalin’s letter to the Union Finance Minister highlighted how the draft rules could “seriously affect rural borrowers” and urged for their exemption.