The Reserve Bank of India (RBI) has allowed banks to accept voluntary pledges of gold and silver from borrowers seeking agriculture and MSME loans, even if the loans fall within the collateral-free limit. 

Against voluntary pledges, banks can sanction loans to the agriculture and MSME sectors up to the eligible collateral-free limit. 

Collateral is not required for loans up to Rs 10 lakh for units in the MSME (micro, small and medium enterprises) sector. Agricultural loans up to Rs 2 lakh do not require collaterals.

The new directive will help small borrowers, particularly in informal segment and rural India, to get easier access to such loans and not disqualify them for collateral-free benefits. For these segments, gold is the most liquid asset and readily available form of security.

The circular, issued on 11 July, said banks may now accept household gold and silver as collateral for loans under Rs 2 lakh, provided the pledge is voluntary. This clarificatory regulation is set to boost financial inclusion and make loan processing by banks faster.

In December 2024, the RBI  had raised the collateral-free loan limit for farmers from Rs 1.6 lakh to Rs 2 lakh per borrower. The aim was to support farmers against rising input costs. 

Banks were told to implement the revised limit by 1 January 2025. The notification was later updated in June.

“Loans against voluntary pledge of gold and silver as collateral by borrowers… will not be construed as a violation,” the RBI said in the circular.