Context:
The Reserve Bank of India (RBI) has clarified that voluntary pledging of gold for small-value loans will not violate collateral-free lending norms. This regulatory relief is expected to enhance priority sector lending (PSL) to farmers and micro enterprises, sectors critical to inclusive credit growth.
Key Highlights:
New RBI Clarification
- Borrowers voluntarily pledging gold to avail loans up to:
- ₹2 lakh for agriculture
- ₹10 lakh for MSMEs
will not be treated as collateral-based lending under PSL norms.
- This move aligns practice with borrower preference and lender risk appetite, without violating the spirit of collateral-free mandates.
Impact on Agricultural Loans
- Small and marginal farmers are set to benefit the most.
- Banks often hesitate to offer unsecured agricultural loans due to high risk and poor credit history in rural segments.
- Gold-backed loans for crop cultivation or allied activities (e.g., dairy, poultry) can now be counted as agricultural lending under PSL.
Boost to MSME Lending
- MSMEs are entitled to collateral-free loans up to ₹10 lakh under PSL.
- Many borrowers, however, prefer pledging gold voluntarily to avoid strict scrutiny under unsecured lending.
- RBI’s clarification will allow banks to extend more loans to micro enterprises while maintaining PSL classification.
Regulatory Compliance and PSL Targets
- As per PSL norms:
- Banks must allocate 40% of Adjusted Net Bank Credit (ANBC) to priority sectors.
- Sub-targets include:
- 18% for agriculture and allied sectors, with:
- 14% for non-corporate farmers
- 10% for small and marginal farmers
- 7.5% for micro enterprises
- 18% for agriculture and allied sectors, with:
- Earlier, at least one bank reclassified agri gold loans as retail gold loans to avoid perceived regulatory violation.
- The new RBI stance removes such ambiguity, allowing accurate PSL reporting without regulatory concerns.
