The Reserve Bank of India (RBI) regulates gold loans extended by banks and NBFCs. But many local jewellers and money lenders are unclear about which RBI rules apply to them and which do not.
Who Does RBI Regulation Apply To?
**RBI directly regulates banks and registered NBFCs.** Local jewellers and individual money lenders licensed under state Money Lenders Acts are regulated primarily by their **state government**, not the RBI.
However, understanding RBI guidelines matters even for local jewellers because customers compare your terms with bank and NBFC terms, and RBI guidelines represent industry best practices.
Key RBI Guidelines for Gold Loans
1. Loan-to-Value (LTV) — Maximum 75%
Lenders cannot give more than 75% of the current market value of pledged gold.
**Example:** Gold worth ₹1,00,000 → maximum loan ₹75,000.
While this directly applies only to RBI-regulated lenders, the 75% LTV is widely considered the prudent limit for all gold lenders. Lending more than 75% means your security cushion is thin if gold prices fall.
2. KYC Compliance
All regulated gold lenders must collect proper KYC. For local money lenders regulated by state laws, similar KYC requirements apply under your state's Money Lenders Act.
3. Transparency in Interest Rate Disclosure
RBI requires clearly disclosing the annual interest rate, processing fees, and total amount payable. For local jewellers, being transparent about your rate is both good practice and required under most state Money Lenders Acts.
4. Auction Rules for Defaulted Loans
Before auctioning pledged gold, regulated lenders must give 14 days' prior notice and conduct the auction at fair market price. Any surplus after recovery must be returned to the borrower.
These principles represent best practice for all gold lenders regardless of regulatory requirement.
What Changed After 2020
**2020:** RBI temporarily raised LTV to 90% during COVID-19. Reversed back to 75% in March 2021.
**2023:** Tighter monitoring of gold loan disbursals after irregularities were noticed.
**2024:** Focus on monitoring end-use of gold loan funds.
Practical Implications for Girvi Business Owners
Even if you operate under state money lending laws, follow these RBI-style best practices:
•Keep LTV at or below 75%
•Disclose interest rates clearly and in writing
•Give 14 days' notice before auctioning pledged items
•Maintain proper digital records
For more on compliance, read our guide on [Money Lending License in India](/blog/money-lending-license-india).
Common Questions
**Does the RBI 75% LTV cap apply to me?** If you are a local money lender licensed under a state Act, technically no. But following it is strongly recommended for your own financial protection.
**Do I need to report to RBI?** No. Local money lenders report to and are licensed by the state government, not the RBI.
Conclusion
RBI directly regulates banks and NBFCs, not local jewellers. However, the principles behind RBI's gold loan guidelines — conservative LTV ratios, transparent disclosure, proper KYC, and fair auction processes — represent best practices every girvi business should follow regardless of regulatory requirement.