The Reserve Bank of India’s new strict guidelines for gold loans have prompted private and nationalised banks, co-operative banks, and non-banking financial companies (NBFCs) to adopt various strategies to comply with the norms, which restrict loan closures within 12 months.

Under the new rules, the maximum tenure for gold loans with monthly instalments has been reduced from 36 months to 12 months, creating challenges for economically vulnerable borrowers. To comply with regulations while maintaining profitability and customer satisfaction, lenders are leveraging alternative strategies.

These strategies include:

• Monthly auto-debit of interest from linked savings accounts

• Technical closures, where loans are temporarily repaid and immediately renewed with fresh documentation

• Closure and re-pledging of loans under a family member’s name by paying only the interest

• Automatic settlement of dues by debiting linked accounts

• Expediting the auction process to minimise defaults after the 12-month tenure ends

Branch managers noted that many borrowers expected to renew loans by paying only interest. Some are now unable to fully repay and may need to borrow elsewhere. In such cases, family members can open basic savings accounts and pledge the jewellery under their names to settle the original borrower’s dues on the same day.

Bank officials stated that these actions are taken in line with RBI norms and in the best interest of customers, helping borrowers avoid overdue payments impacting their credit profiles.

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